Amalia Investments Ltd v Virgtel Global Networks N.V. [2011] FCA 1270 | Case summary

Amalia Investments Ltd v Virgtel Global Networks N.V. [2011] FCA 1270 | Case summary | Zoe

[13]

The Federal Court proceeding 5 The applicants in the principal proceeding, the Zabusky parties (Harvey and Amalia Zabusky and their British Virgin Islands company, Amalia Investments Ltd ("Amalia Investments")), contend that on or about 7 October 2000, Amalia Investments (by Harvey Zabusky) made an agreement at Tallai in Queensland called an "informal protocol" with Hendrik van Leeuwen (on behalf of Viscaya Armadora SA, a company incorporated in Panama) to the effect that Viscaya would abide by the terms of an earlier shareholders agreement made between Amalia Investments and a company conveniently described as "White Owl" concerning matters in relation to a company called Virgtel Limited. 6 The informal agreement seems to have come to pass because Viscaya became an incoming shareholder as buyer of White Owl's significant shareholding interest in Virgtel Limited and the Zabusky parties sought to achieve a commitment that Viscaya would honour the earlier arrangements made with White Owl. 7 The earlier shareholders agreement concerned the rights and duties inter se of White Owl and Amalia Investments concerning their respective investment in Virgtel Limited as an 85% shareholder in another company called Virgin Technologies Ltd ("VTL"), a Nigerian company, that carried on a satellite-based telecommunications undertaking in Nigeria with interconnection arrangements with international telecommunications providers. 8 The informal protocol was later recorded in a document called the "Protocol of Understanding and Undertaking" (the "Protocol") signed on 20 October 2000 in Rotterdam by Harvey Zabusky for Amalia Investments and Hendrik van Leeuwen for Viscaya. The Protocol addresses, it is said, the re-distribution of the shares in VTL; the incorporation of a new holding company for VTL being Virgtel Global (the first respondent); the holding by Amalia Investments and Viscaya of an equal number of shares in Virgtel Global; and other matters pleaded at paras 13, 13A, 13B and 13C of the amended statement of claim. The amended statement of claim pleads contended implementation events; reliance conduct; conduct on the part of Hendrik van Leeuwen and his lawyer, Mr Droppert; events in relation to the incorporation of Virgtel Global; events concerning the shareholding in Virgtel Global and changes in the shareholding and directorships in that company; and further conduct on the part of Hendrik van Leeuwen and Maria van Leeuwen. 9 Put simply, all of this conduct and these events (expressed as breaches of duty of various kinds or breaches of agreements or fraudulent conduct) is pleaded so as to establish that the conduct had the effect of depriving Amalia Investments of its investment in VTL through Virgtel Limited or Virgtel Global. 10 In terms of the relief sought in the proceedings, the applicants seek an order for damages or alternatively the taking of accounts against Virgtel Global, Hendrik van Leeuwen and the estate of Maria van Leeuwen. As against Viscaya, the applicants seek a declaration that by reason of the fraudulent conduct of Viscaya, Amalia Investments was deprived of its investment in Virgtel Global and consequently its investment in VTL thus causing Amalia Investments loss and damage. The applicants seek an order that Viscaya is jointly liable with the other respondents for the loss and damage caused by reason of the pleaded conduct and in the alternative the taking of accounts.

[15]

The proceedings in the Supreme Court of Queensland 13 There is however a proceeding in the Supreme Court of Queensland which has been on foot since 10 August 2005. 14 In that action the second and third applicants in this Court (Amalia and Harvey Zabusky) are the first and second respondents. In the Supreme Court proceedings, Virgtel Limited brings a derivative action as a shareholder in VTL (the sixth respondent) in which Virgtel Limited contends that Harvey Zabusky (the first respondent) engaged in conduct in breach of duties owed to VTL as a director of that company in the conduct and management of VTL's satellite-based telecommunications undertaking and, in particular, took steps to divert revenues payable to VTL or its agent (arising out of international telephony service agreements such as the arrangements with "Gateway", "British Telecom" and contracts with "local customers") either to himself or his son Erez Zabusky (the third respondent) or companies controlled by Harvey Zabusky (Commslogic Pty Ltd (the fourth respondent), and Softquest Solutions Pty Ltd (the fifth respondent)). 15 Each of these individuals or entities, together with Amalia Zabusky, are the respondents in the Supreme Court derivative action. Virgtel Limited seeks damages or the taking of accounts against the respondents and a declaration that assets acquired by them out of the diverted revenues are held on trust for VTL. 16 The Supreme Court proceedings also concern questions relating to the appointment and removal of directors of VTL; the accuracy of documents lodged with the Nigerian Corporate Affairs Commission in relation to VTL; the allotment of shares in VTL; and, the shareholding arrangements and events concerning the shareholding in Virgtel Limited. 17 In those proceedings, Virgtel Limited contends that it is entitled to 85% of the shares in VTL. The shares in Virgtel Limited are said to be held as to 53.0002% by the van Leeuwen interests (through Viscaya) and as to 39.998%, the Zabusky interests (through Amalia Investments).

[17]

The provisions of the Cross-vesting Act 23 Section 5(4) of the Cross-vesting Act is, relevantly, in these terms: 5 Transfer of proceedings … (4) Where: (a) a proceeding (in this subsection referred to as the relevant proceeding) is pending in the Federal Court … (in this subsection referred to as the first court); and (b) it appears to the first court that: (i) the relevant proceeding arises out of, or is related to, another proceeding pending in the Supreme Court of a State or Territory and it is more appropriate that the relevant proceeding be determined by that Supreme Court; (ii) having regard to: (A) whether, in the opinion of the first court, the relevant proceeding or a substantial part of it would have been incapable of being instituted in that court, apart from this Act and any law of the Australian Capital Territory or the Northern Territory relating to cross-vesting of jurisdiction; and (B) whether, in the opinion of the first court, the relevant proceeding or a substantial part of it would have been capable of being instituted in the Supreme Court of a State or Territory, apart from this Act and any law of a State or Territory relating to cross-vesting of jurisdiction; and (C) the extent to which, in the opinion of the first court, the matters for determination in the relevant proceeding are matters arising under or involving questions as to the application, interpretation or validity of a law of the State or Territory referred to in sub-paragraph (B) and not within the jurisdiction of the first court apart from this Act and any law of the Australian Capital Territory or the Northern Territory relating to cross-vesting of jurisdiction; and (D) the interests of justice; it is more appropriate that the relevant proceeding be determine by that Supreme Court; or (iii) it is otherwise in the interests of justice that the relevant proceeding be determined by the Supreme Court of a State or Territory; the first court shall transfer the relevant proceeding to that Supreme Court. 24 The applicants contend that a jurisdiction to transfer a proceeding pending in the Federal Court of Australia is conferred upon the Court by s 9(3) of the Cross-vesting Act (notwithstanding that the proceeding fails to enliven any element of federal jurisdiction) which is in these terms: 9 Exercise of jurisdiction pursuant to cross-vesting laws … (3) The Federal Court … may: (a) exercise jurisdiction (whether original or appellate) conferred on that court by a provision of this Act or of a law of the Australian Capital Territory or the Northern Territory relating to cross-vesting of jurisdiction; and (b) hear and determine a proceeding transferred to that court under such a provision.

[18]

Jurisdictional issues 25 Section 9(3) of the Cross-vesting Act is concerned with the exercise of jurisdiction conferred on the Court, relevantly, by a provision of the Cross-vesting Act, to hear and determine a proceeding transferred to the Court "under such a provision". Section 9(3) assumes or contemplates the exercise of a jurisdiction otherwise conferred upon the Federal Court by the Cross-vesting Act. The conferral of jurisdiction to make a transfer order, so far as the present application for transfer is concerned, is to be found in s 5(4) itself as that section not only contemplates a jurisdiction to transfer a pending proceeding but compels the making of a transfer order of a pending proceeding to the Supreme Court of Queensland in the circumstances of s 5(4)(a) together with (b)(i), or (b)(ii), or (b)(iii). 26 Apart from a jurisdiction to make a transfer order under s 5(4) of the Cross-vesting Act, the original jurisdiction of the Federal Court of Australia includes jurisdiction in any matter, arising under, any laws made by the Commonwealth Parliament (other than a matter in respect of which a criminal prosecution is instituted or any other criminal matter): Judiciary Act 1903 (Cth) (the "Judiciary Act"), s 39B(1A)(c); Federal Court of Australia Act 1976 (Cth), s 19(1); see also LNC Industries Ltd v BMW Australia Ltd (1983) 151 CLR 575 at 581. 27 The applicants and the respondents are, apart from the principal proceeding, engaged in a controversy before this Court (that is, a matter) arising under the Cross-vesting Act as to whether a proceeding (the "principal proceeding") filed in this Court can or ought to be the subject of a transfer order under the Cross-vesting Act as an exercise of the judicial power of the Commonwealth. Although s 39B(1A)(c) does not confer jurisdiction on the Federal Court in the principal proceeding, the Court's jurisdiction in the transfer matter arises under the Cross-vesting Act by operation of s 5(4); s 39B(1A)(c) of the Judiciary Act; and, s 19(1) of the Federal Court of Australia Act. 28 Section 5(4)(a) selects for its operation, relevantly in this case, a proceeding pending in the Federal Court and provides, in conjunction with s 5(4)(b)(i), that where it appears to the Federal Court that the pending proceeding arises out of or is related to another proceeding pending in the Supreme Court of Queensland, and it is more appropriate that the Federal Court proceedings be determined by the Supreme Court of Queensland, the Federal Court shall transfer the Federal Court proceedings to the Supreme Court. 29 Although the Zabusky parties concede that the pending proceeding fails to enliven any element of federal jurisdiction, the proceeding may nevertheless be a proceeding pending in the Federal Court in the sense only that it represents a controversy between parties which remains unresolved before the Federal Court as the "controversy" has not been finally dealt with by a determination of the question of whether the pending proceeding regularly invokes the Court's jurisdiction. Plainly, the matter in controversy in the principal proceeding cannot be dealt with in any final sense in this Court on the merits as the Court's jurisdiction is not enlivened. The concession that the proceeding as filed (or as proposed to be, as framed by the amended statement of claim) fails to enliven any ground of jurisdiction does not result in the conclusion that there is no proceeding pending before the Court, as a question of fact. 30 Section 5(4)(a) of the Cross-vesting Act operates on the footing that there is a "relevant proceeding" pending before the Federal Court. A filed proceeding purporting to enliven a justiciable controversy within this Court's jurisdiction, although now conceded as entirely failing to do so, is not simply a nullity for the purposes of s 5(4) of the Cross-vesting Act. 31 However, must the "pending proceeding" regularly invoke the Federal Court's jurisdiction in order to engage s 5(4) of the Cross-vesting Act. 32 Counsel for the parties have not identified any authority that addresses the question of a transfer application under s 5 of the Cross-vesting Act in circumstances where the pending proceeding in the transferor court is entirely beyond the jurisdiction of that Court (a situation to be distinguished from one where, in the case of the Federal Court, a federal matter arises which is either not pressed or shown to be unmeritorious, and the Court nevertheless properly exercises jurisdiction over associated or pendant matters otherwise not independently within jurisdiction). 33 In BHP Billiton Limited v Schultz (2004) 221 CLR 400 (BHP v Schultz), Gleeson CJ, McHugh and Heydon JJ observed at [14] that an application for transfer under s 5 of the Cross-vesting Act "… is brought upon the hypothesis that the jurisdiction of the Court to which the application is made has been regularly invoked" and further observed that the exercise of the transfer power under s 5 is not conditioned by the statute on any notion that it appear to the transferor court that the transferor court is a "clearly inappropriate" forum (thus distinguishing the principles derived from Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538 and subsequent authorities including Goliath Portland Cement Company v Bengtell (1994) 33 NSWLR 414 in determining questions of forum non conveniens). The determination of whether it appears to the transferor court that the interests of justice are served by ensuring (by a transfer order under s 5 of the Cross-vesting Act) that a pending proceeding be determined by another designated court, assumes that the pending proceeding regularly invokes the jurisdiction of the transferor court. 34 The forum non conveniens approach begins from the premise (BHP v Schultz at [25]) that the jurisdiction of the Court of the forum has been regularly invoked and the Court then determines whether the exercise of jurisdiction is to be refused (or not) on the footing of whether the Court of the forum is a clearly inappropriate forum for the determination of the controversy. Although the idea, influential in approaches to the determination of forum non conveniens questions, of a Court not lightly refusing the exercise of jurisdiction once properly invoked is "out of place" in a decision about s 5 of the Cross-vesting Act (BHP v Schultz at [25]), the regular invoking of the jurisdiction of the transfer court remains central to s 5 of the Cross-vesting Act. At [72] in BHP v Schultz, Gummow J observed that s 5 of the Cross-vesting Act "… assumes the regular invocation of jurisdiction, both as to amenability of the defendant to process and as to subject matter". The mere regular invocation of jurisdiction is, of course, not determinative of a transfer application as the question to be determined is where the balance lies in properly serving the interests of justice in each case. 35 It follows therefore that once it is clear (or a concession is made) that the proceeding fails to regularly invoke the jurisdiction of the transferor court, the assumption upon which s 5 operates and is to be engaged, fails to be satisfied. Although the proceeding in the Federal Court is a pending proceeding as a question of fact, it is not a proceeding which regularly invokes the jurisdiction of the Court and thus s 5 is not engaged at all. 36 Assuming that the principal proceeding in the Federal Court is to be treated as a pending proceeding which engages s 5 of the Cross-vesting Act, the questions arising under s 5(4)(b)(i) in the disposition of the transfer application include whether it appears to the Court that the pending proceeding either arises out of or is related to another proceeding pending in the Supreme Court of Queensland and whether it is more appropriate that the pending proceeding be determined by the Supreme Court. 37 On the assumption that the pending proceeding arises out of or is related to the Supreme Court proceeding (discussed below), the Court is required to give consideration to the content of the phrase "more appropriate that the relevant proceeding be determined" by the Supreme Court. More appropriate than what? Must it appear that it is more appropriate than "determining" the proceeding in the Federal Court recognising, of course, that the pending proceeding cannot be heard and determined on the merits in the Federal Court as there is no justiciable controversy before this Court? Must it appear more appropriate in the interests of justice in quelling a controversy in the relevant forum that the pending proceeding be determined in the Supreme Court rather than "determined" as a jurisdictional matter before the Federal Court? 38 Since the Federal Court does not have jurisdiction in the matter in controversy in the principal proceeding, there is no foundation upon which the pending matter can be determined, on the merits, before the Federal Court. The pending proceeding can, of course, be determined by the Federal Court on the footing that it might be struck out as beyond jurisdiction and it might be less appropriate to determine the pending proceeding in the Supreme Court if the "first court" (in this case, the Federal Court) forms the view that the pending proceeding (which irregularly seeks to invoke federal jurisdiction) is an abuse of process. 39 In such a case, it may be more appropriate to determine the pending proceeding in the Federal Court by making orders which address a demonstrated abuse of the process of the Federal Court (if it be the case on the material before the first court).

[19]

A proceeding that arises out of or relates to another proceeding 40 Leaving aside the question of whether the pending proceeding represents an abuse of process, the prime consideration in applying s 5(4)(a) and (b) is how might the interests of justice best be served and in determining the application of the section, there is no presumption in favour of or against any party and no party carries any onus: Bankinvest AG v Seabrook (1988) 14 NSWLR 711 at p 714; Cascade Group Limited v Carlton and United Breweries Limited; [1992] ATPR 40,358 per Sheppard J at p 40,365. The application of the section involves a balancing of the relevant factors rather than the discharge of an onus of proof: Buckley v Gibbett (1996) 69 FCR 554, per RD Nicholson J at p 559E. 41 A relevant proceeding arises out of another proceeding if there is some causal element between the two even if the causal element is not "… direct or proximate": Re Hamilton Irvine (1990) 94 ALR 428 at 432. A pending proceeding relates to another proceeding if the two are associated or connected: Re Hamilton Irvine at p 433; Leithead v Leithead (1991) 109 FLR 177; Hoddell v Hoddell Pty Ltd [1999] WASC 156; Armstrong v Armstrong [2004] WASC 121, [49] to [56]; Bell Group Ltd v Westpac Banking Corporation (2000) 173 ALR 427 at [186] to [203]. A proceeding is related to another proceeding where "… a substantial and common question" arises in both proceeding (Mattock v Mattock (1989) 13 Fam LR 288 per McLelland J at 290) or where the "… facts and circumstances in the two proceedings … appear to be intertwined" (Foley v Green [2011] VSC 155 per Almond J at [21]. In Buckley v Gibbett, the two proceedings were found to be related on the footing of the "… essential commonality of facts and of parties" thus satisfying the "… requirements of relationship" per RD Nicholson J at p 560F. 42 As indicated earlier, the essential contention in the Federal Court proceeding involves an examination of the conduct of the respondents (put simply, the van Leeuwen parties) arising out of contended breaches of fiduciary duty, breaches of agreement (derived initially from the "informal protocol" and then the Protocol), particular pleaded conduct, and contended fraudulent conduct. An aspect of the controversy involves an examination of events in relation to the shareholding and directorships in particular entities as earlier described. The Supreme Court proceedings also involve an examination of some aspects of the history of the dealings in the shareholding in some of the same entities. The causes of action pleaded in the Supreme Court proceeding involve allegations of conduct by the Zabusky parties of diverting revenues from the entity conducting the telecommunications undertaking (VTL), as earlier described. Although those causes of action in the Supreme Court proceeding involve an examination of different factual and legal questions, there are some common questions concerning the history of the dealings in Virgtel Limited and VTL. If both proceedings had been commenced in the Supreme Court from the outset, the probability is that both matters would have been reviewed in directions hearings together and, argument would, no doubt, have been heard as to whether each proceeding ought to be heard together or perhaps one after the other. 43 I am satisfied that although the causes of action are different, the contextual factual enquiries are such that there is a relationship between the two proceedings as framed by the final version of the proposed amended statement of claim. 44 More importantly however, I am also satisfied that the Federal Court proceeding arises out of the Supreme Court proceedings in the sense that the Federal Court proceeding is causally related and was commenced solely by reason of the failure of the Zabusky parties to secure a stay of the costs orders made in the Supreme Court proceedings. The procedural history therefore is important and it involves these considerations.

[20]

The procedural history of the proceedings in the Supreme Court of Queensland 45 The applicants in the Supreme Court proceedings (who are conveniently referred to as the van Leeuwen parties) seem to have commenced the Supreme Court proceedings by means of an ex parte application for Mareva injunctions and an Anton Piller order. Those orders were made on 10 August 2005. 46 The respondents successfully challenged aspects of the Anton Piller order after it was executed. 47 In a subsequent decision, Virgtel Limited & Anor v Zabusky & Ors [2006] QSC 66 in 2006, Chief Justice de Jersey summarised the key allegations then raised by the applicants in the proceeding in this way at [6]: Harvey Zabusky used his position as a director of VTL and through his day-to-day involvement in its management improperly diverted substantial sums of money from VTL to himself, and to his wife, and his son, and to entities associated with him and them; Harvey Zabusky and his son Erez improperly sold VTL assets and retained the proceeds for themselves; and, Harvey Zabusky and Erez improperly removed and retained computers, information storage devices, information and records belonging to VTL, and brought them to Queensland, where the Zabusky family now resides. 48 It seems that following the initial ex parte application, the Zabusky parties gave undertakings to the Supreme Court on 9 November 2005 that they would not, pending the trial of the matter, deal with their assets in the manner outlined in the Court order: Virgtel Limited & Anor v Zabusky & Ors [2006] QSC 241 at [1]. 49 The applicants gave the usual undertaking as to damages and deposited $500,000 in their solicitor's trust account as security for costs. 50 On 6 April 2006, de Jersey CJ gave judgment in two interlocutory applications, one filed by the applicants on 16 December 2005 and one filed by the first to fifth respondents on 20 December 2005: Virgtel Limited & Anor v Zabusky & Ors [2006] QSC 66. The Chief Justice granted the applicants' application by which they sought leave nunc pro tunc to commence and continue the proceeding as a derivative action on behalf of the sixth respondent (VTL) against the first to fifth respondents: see [12], [90] and [93]. The Chief Justice also ordered that the first to fifth respondents pay the applicants' costs of and incidental to the application to be assessed. 51 The first to fifth respondents sought the summary dismissal or a stay of the proceeding contending that Nigerian law precluded the derivative proceeding; because receivers had been appointed to VTL, the proceeding was incompetent in the absence of the receiver's consent or leave of a Nigerian court; the proceeding could not succeed factually in any event (although this contention appears not to have been pursued at the hearing); and, Queensland is an inappropriate forum for the determination of the matters in issue (a forum non conveniens argument). 52 The Chief Justice determined that the Supreme Court of Queensland was not a "clearly inappropriate forum", dismissed the application of the Zabusky parties and ordered the Zabusky parties to pay the costs of the applicants (in the principal action) of the summary dismissal or stay application: see [32], [50]-[51], [90], [93] and [105]. 53 On 1 September 2006, de Jersey CJ dismissed an application filed by the Zabusky parties (first to fifth respondents) seeking the release of the fourth respondent, Commslogic, from an earlier undertaking or, in the alternative, a variation of the undertaking not to deal with assets pending trial, so as to enable Commslogic to raise further capital to address its unprofitability: Virgtel Limited & Anor v Zabusky & Ors [2006] QSC 241 [1] and [10]. The Chief Justice determined that five unanswered concerns raised by the applicants (in the principal action) in respect of the failure of the Zabusky parties to adequately disclose the details of a proposed "memorandum of understanding", outweighed making an order varying the undertaking to enable Commslogic to raise further capital: see [20]. The application was dismissed with costs to be assessed. 54 On 10 September 2008, Daubney J allowed, in part, an application by the first to fifth respondents for an order striking out certain paragraphs of the applicants' further amended statement of claim: Virgtel Ltd & Anor v Zabusky & Ors [2008] QSC 213. His Honour gave leave to the applicants to re-plead. The costs of the application were reserved. 55 On 5 December 2008, Daubney J delivered judgement in relation to two further applications made by the first to fifth respondents: Virgtel Ltd & Anor v Zabusky & Ors (No 2) [2008] QSC 316. The first was an application under rule 800 of the Uniform Civil Procedure Rules 1999 (Qld) ("UCP Rules") and in the Supreme Court's inherent jurisdiction to stay the enforcement of costs orders made against the first to fifth respondents in previous interlocutory proceedings. The relevant costs orders were those made by de Jersey CJ discussed above (made on 6 April 2006 and 1 September 2006); an order of McMurdo J made on 2 August 2006 consequent upon the applicants' successful application concerning breaches by the respondents of their undertaking; and, a further order of de Jersey CJ made on 29 June 2007 dismissing a further application by the respondents to vary the undertaking. 56 Daubney J dismissed the application for a stay of execution of the costs orders, with costs to be paid by the Zabusky parties (the first to fifth respondents): [21]. 57 His Honour observed that as the UCP Rules contain no equivalent to Order 62 rule 3 of the Federal Court Rules, unless the primary judge makes a special order as to costs, the costs must be paid once they have been assessed and certified and the Registrar makes an order under UCP Rules, rule 740, consequent upon the filing of a costs assessment. Daubney J concluded that the respondents had not demonstrated any basis for a stay and noted, at [16] that to stay the costs orders now would have "… the effect of going behind the exercise of discretion undertaken by each judge who made the relevant costs orders". 58 The second application of the Zabusky parties addressed by Daubney J was an application to vary an undertaking given to the Court on 9 November 2005, so as to either remove a limit on the amount of a mortgage (so as to increase the secured borrowing) or alternatively to allow an increase in the limit on the mortgage from $500,000 to $700,000: see [26]. Daubney J gave leave to vary the undertaking to increase the limit of the mortgage to $700,000 and reserved the costs of that application. 59 The first to fifth respondents appealed from Daubney J's decision of 5 December 2008 to refuse a stay of the costs orders made against the Zabusky parties (being those costs orders described at [44] of these reasons). 60 In all of these applications the Zabusky interests were represented by solicitors and senior and junior counsel.

[21]

The commencement of Federal Court proceeding on 7 January 2009 61 On 7 January 2009, the applicants commenced the Federal Court proceeding. They seem to have done so on their own behalf without the assistance of solicitors or counsel. 62 On 7 January 2009, the applicants also filed a statement of claim together with an affidavit of Harvey Zabusky. On 30 January 2009, the applicants made an ex parte application for urgent interlocutory relief. The applicants sought orders restraining the respondents from removing any of their assets out of the jurisdiction of the Federal Court or from disposing, transferring, charging, dissipating, diminishing or in any way dealing with their assets within the jurisdiction. 63 The particular assets sought to be attached by the proposed interlocutory freezing orders comprised the value of the four costs orders made in the Supreme Court proceedings (which were the subject of the orders made by Daubney J on 5 December 2008 in dismissing the stay application) and an amount of $650,000 deposited by the van Leeuwen parties in the Supreme Court proceedings (respondents in the Federal Court proceeding) with James Conomos Lawyers as security for costs and the undertaking given by the van Leeuwen parties. 64 In other words, the Zabusky parties in the Federal Court proceeding (being the respondents in the Supreme Court proceedings) sought to prevent, by Federal Court orders, the van Leeuwen interests from having the benefit of the costs orders they had obtained as applicants in the Supreme Court proceedings against the Zabusky interests, on the footing that should the van Leeuwen interests have the benefit of the costs orders, that benefit would represent a dissipation of an "asset" of the van Leeuwen interests. Secondly, the Zabusky parties sought to attach the security monies which the van Leeuwen parties had deposited with their solicitors pending the determination of the Supreme Court proceedings. 65 The costs orders made in the Supreme Court were compensatory orders in respect of costs incurred by the applicants in the Supreme Court proceedings arising out of their success against the Zabusky parties, on the merits, in the applications already discussed. As to the security monies, the applicants in the Supreme Court proceedings had submitted to orders in that Court establishing the security fund pending the determination of the Supreme Court proceedings or other earlier order of that Court. 66 The application ex parte (or otherwise) in the Federal Court for Mareva orders was a novel proposition having regard to the character of the assets sought to be attached. As to the costs, the "asset" represented an obligation of the Zabusky parties to pay the van Leeuwen parties the value of the costs orders made in the Supreme Court ($282,307.19), and as to the security interest, the van Leeuwen interests had submitted to the Supreme Court's jurisdiction and had established the security fund ($650,000) pending the determination of those proceedings. 67 Put another way, the Zabusky parties in the Federal Court proceeding sought relief from this Court designed to deprive the successful van Leeuwen parties of the benefit of the various costs orders they had obtained (which were not stayed) in the Supreme Court. The application for the Mareva relief was dismissed: Amalia Investments Ltd v Virgtel Global Networks NV [2009] FCA 39. That perception of the conduct of the Zabusky parties is no doubt why, on 4 March 2009, when the ex parte Federal Court application was drawn to the attention of Daubney J in the course of a review of the Supreme Court proceedings, his Honour said this at p 9 of the Transcript of 4 March 2009: DAUBNEY J: [speaking of the proceedings in the Federal Court] - Yeah, but, gee, it starts to leave a nasty taste in your mouth when you see what is clearly an attempt in the Federal Court of Australia to subvert the authority of this court. MR TUCKER: [solicitor for the Zabusky interests in the Supreme Court proceedings] - I can't comment on that. I haven't read it. DAUBNEY J: I'm not inviting you to comment on that. That's apparent from the face of the Federal Court documents. 68 It is in this sense that the Federal Court proceeding arises out of the Supreme Court proceedings. 69 The solicitors for the respondents in the Federal Court proceeding became aware of that proceeding by chance and complained about the commencement of the proceeding before Daubney J on 27 February 2009 and later again on 4 March 2009, giving rise to the observations of Daubney J quoted above. 70 Approximately two years after the commencement of the unserved Federal Court proceeding, the applicants (the Zabusky parties) sought to revive the proceeding. A directions hearing was held before me on 2 February 2011. At that time, I invited the solicitor for the Zabusky parties, Mr Tucker, to identify the basis upon which federal jurisdiction is enlivened by the proceeding. Mr Tucker said that he was not in a position to respond. On 16 February 2011, the first respondent made an application for orders striking out the proceeding as beyond jurisdiction. The remaining respondents filed a notice of motion on 11 March 2011 also seeking an order that the Federal Court proceeding be struck out for want of jurisdiction, conditional appearances having been filed. 71 The strike-out applications were listed for hearing on 24 March 2011. The Zabusky parties then requested an adjournment as their counsel was unavailable. The applications were then listed for hearing on 20 April 2011. On 19 April 2011, the solicitor for the Zabusky parties sent an email to the solicitor for the respondents to say that the applicants would re-plead the statement of claim so as to address the jurisdictional question. The applicants sought an adjournment of the strike-out applications. On 20 April 2011, an order was made that the applicants file and serve an amended statement of claim by 4.00pm, 11 May 2011. The proceeding was listed for directions on 18 June 2011. 72 The applicants sought an extension of time for delivery of an amended pleading and on 12 May 2011 an order was made that the amended pleading be filed and served by Friday, 13 May 2011. The amended pleading was provided to the respondents on Friday, 20 May 2011. The strike-out applications had been adjourned in the meantime to be dealt with in the context of the proposed amended statement of claim. On 25 May 2011, the applicants' solicitors gave notice to the respondents that the Zabusky parties would not be contending that the amended pleading enlivens any federal matter and that they would be applying for an order transferring the Federal Court proceeding to the Supreme Court of Queensland under the Cross-vesting Act. 73 Although the question of whether the proceeding either in its revived form on 2 February 2011 or at the outset gives rise to any element of federal jurisdiction was in issue from 2 February 2011 and formally the subject of a strike- out application from 16 February 2011, it was not until 25 May 2011 that the applicants conceded that no aspect of their proceeding enlivens any element of federal jurisdiction. 74 The applicants in the Federal Court proceeding are represented by the solicitors who have represented them as respondents since June 2007 in the Supreme Court proceedings. Mr Tucker has appeared as either the instructing solicitor, or personally, on the behalf of the applicants, in those proceedings. Mr Cooper SC first appeared for the Zabusky parties in the Supreme Court proceedings on 18 February 2008. The applicants in commencing the Federal Court proceeding on 7 January 2009 on their own behalf had an opportunity to seek advice from experienced counsel and solicitors as to the appropriateness of the proposed course of action. 75 As previously mentioned (at [59]), apart from the ex parte application before the Federal Court for freezing orders in respect of the costs obligations of the Zabusky parties owed to the van Leeuwen parties, the Zabusky parties had appealed to the Court of Appeal from the orders of Daubney J of 5 December 2008 dismissing the stay application concerning the four costs orders.

[22]

The outcome of the proceedings before the Court of Appeal in determining the appeal from the orders made by Daubney J on 5 December 2008 76 Prior to the hearing of the substantive appeal, the Court of Appeal dismissed an application by the respondents to the appeal (the van Leeuwen interests) for an order dismissing the appeal as incompetent: see Virgtel Ltd & Anor v Zabusky & Ors [2009] QCA 92. The van Leeuwin parties were ordered to pay the costs of the respondents of that application. 77 At the hearing of the substantive appeal the appellants (the Zabusky parties) contended that Daubney J had erred in concluding that a stay of the execution of the costs orders would require the primary judge to go behind the exercise of each judge's discretion in making the particular order, and erred in finding that no special circumstances existed warranting the grant of a stay: Virgtel Ltd & Anor v Zabusky & Ors [2009] QCA 349 at [4]. McMurdo P (with whom Mullins and Philippides JJ agreed) rejected both contentions at [21] and [29]. McMurdo P further observed at [28] that her Honour was not persuaded that the appellants had demonstrated the required special circumstances which might warrant granting them the benefit of "… such an extraordinary order at this late stage". 78 In reaching this conclusion, her Honour regarded at [23] the fact that the appellants had failed to apply for a stay of execution of the costs orders until after the costs had been assessed, a certificate of assessment filed, and the making of an order under rule 740 by the Registrar, as a telling factor against the success of the stay application. This was particularly so since the principal argument advanced in support of the application for a stay, namely, that absent a stay, the Zabusky parties would not be able to set-off these costs orders in the event that they are ultimately successful at trial, was always a matter that could have been agitated from the very outset rather than waiting until the assessments were done, the certificate of assessment filed, and the making of an order by the Registrar: at [23]. 79 Further, McMurdo P observed at [25] that if the Zabusky parties were concerned about the adequacy of the security for costs (or the security for the undertaking as to damages) given by the applicants (the respondents to the appeal), the proper way of dealing with that issue is to make an application to increase the amount of the security. Accordingly, on 10 November 2009, the Court of Appeal dismissed the appeal with an order that the appellants (the Zabusky parties) pay the costs of the van Leeuwen parties.

[25]

The further fresh proceedings commenced by Mr Harvey Zabusky in the Supreme Court of Queensland 82 Mr Harvey Zabusky commenced further (fresh) proceedings in the Supreme Court of Queensland against Mr van Leeuwen and James Conomos Lawyers (a firm) on 29 April 2010 (BS 4405/2010). The applicants in that proceeding are Mr Zabusky and Virgtel Limited. Those proceedings have been the subject of an interlocutory judgment in Zabusky & Anor v van Leeuwen & Anor [2011] QSC 270. Virgtel Limited is not a party to the Federal Court proceedings but is an applicant in the Supreme Court proceeding instituted by the van Leeuwen interests as a derivative action. Mr Zabusky asserts in foreign proceedings that he has authority to act on behalf of Virgtel Limited and that he is the sole lawful director of Virgtel Limited: see Zabusky & Anor v van Leeuwen & Anor [2011] QSC 270 at [5]. 83 The application by which these further Supreme Court proceedings were commenced seeks a range of injunctions to restrain Mr van Leeuwen from acting or giving instructions on behalf of Virgtel Limited and an order restraining James Conomos Lawyers from acting on behalf of Virgtel Limited: Zabusky & Anor v van Leeuwen & Anor [2011] QSC 270 at [5]. On 9 September 2011, Daubney J dismissed (at [49] in the above decision) an application brought by Mr Zabusky for an order extending an interim injunction previously granted which had prevented Mr van Leeuwen from accessing settlement money payable to him consequent upon proceedings taken against Gadens Lawyers in the Victorian Civil and Administrative Tribunal. The application was refused on the basis that neither Mr Zabusky or Virgtel Limited had a demonstrated cause of action against Mr van Leeuwen to sustain the grant of the injunction as the only cause of action arising from the assertions made and evidence led by the applicants in that proceeding is a claim by VTL that Mr van Leeuwen misappropriated funds: at [48]. Daubney J at [49] also refused an application to join Amalia Investments as an applicant as the applicants had failed to demonstrate that Amalia Investments had any relevant interest in the proceeding. The costs of the application for joinder and the application for an interlocutory injunction were reserved.

[26]

The application of s 5(4)(a) and (b)(i) in the context of these facts 84 I am satisfied that the Federal Court proceeding arises out of the proceedings in the Supreme Court of Queensland in the sense mentioned at [44] and [68] of these reasons having regard to the history of the relationship between the applications and orders made in the Supreme Court and the commencement of the Federal Court proceeding and the ex parte relief sought by the Zabusky parties which sought to attach the value of the costs orders and the amount of the security monies in connection with the Supreme Court proceedings. 85 Having regard to the proposed amended statement of claim, there are some common questions in the two proceedings concerning aspects of the dealings in the shares in Virgtel Limited, matters related to share transactions, the appointment of directors and events in relation to aspects of the transactions the subject of the Supreme Court proceedings. However, the causes of action are ultimately quite different. 86 However, I am not satisfied that it is more appropriate that the Federal Court proceeding be determined by the Supreme Court of Queensland. The proceeding in this Court was commenced for the purpose of seeking the intervention of the Federal Court so as to deprive the van Leeuwen interests of the benefit of interlocutory remedial orders on the issue of costs in applications before the Supreme Court in which they were successful on the merits. I am satisfied that the Federal Court proceeding was commenced and an ex parte application made (by definition, without service of the proceedings or the application upon the respondent parties with whom the Zabusky parties had been engaged in litigation in the Supreme Court from 10 August 2005 where all parties were represented by counsel and solicitors) as an abuse of process for the purpose of seeking to arrest the enforcement of the costs orders arising out of the failure of the stay application by the Zabusky parties, pending the determination of an appeal to the Court of Appeal of the Supreme Court of Queensland. That application was made by the Zabusky parties independently of their lawyers and failed to identify any aspect of federal jurisdiction to support the proceeding. 87 When the Court considers whether it is more appropriate to transfer a relevant proceeding to the Supreme Court for the purposes of s 5(4) of the Cross-vesting Act, one consideration informing that decision is whether the proceeding commenced in this Court is commenced for a proper purpose. In this case, it seems plain to me that the Zabusky parties sought to arrest or undermine the orthodox consequences of orders made on the merits in the various applications in which they had been unsuccessful in the Supreme Court. They were unsuccessful in the stay application on 5 December 2008 before Daubney J and the proceedings in this Court were commenced on 7 January 2009. 88 Accordingly, for the purposes of s 5(4)(a) and (b)(i) it does not appear to me, on the facts before me, that the interests of justice are served by transferring the proceeding to the Supreme Court of Queensland. It seems to me "more appropriate" that the Federal Court proceedings be addressed in this Court and since the proceeding raises no element of federal jurisdiction and represents an abuse of process of this Court, the proceeding must be struck out. 89 The Zabusky parties contend that they confront the difficulty of the expiration of a limitation period in respect of the causes of action they seek to advance as pleaded in the amended statement of claim in the controversy to be transferred to the Supreme Court of Queensland. I am not satisfied that sufficient material is before me to determine that question. In any event, the proceeding is an abuse of process. It was not commenced for a proper purpose. It must be struck out.

[27]

Section 5(4)(a) and (b)(ii) 90 These provisions are set out at [23] of these reasons. 91 They contemplate that a certain state of affairs may appear to the Federal Court having regard to factors described as (A), (B), (C) and (D). Section 5(4)(b)(ii) has no application in the present proceedings. It contemplates a set of circumstances which are quite different to those prevailing in this case. Consideration 5(4)(b)(ii)(A) requires the Court to consider whether, in the opinion of the Federal Court, the Federal Court proceeding or a substantial part of that proceeding would have been incapable of being instituted in the Federal Court apart from the Cross-vesting Act and other identified laws. 92 In this case, no part of the Federal Court proceeding could have been instituted in this Court by operation of the Cross-vesting Act: Re Wakim; Ex parte McNally (1999) 198 CLR 511; BHP v Schultz, per Gummow J at [47]. Consideration 5(4)(b)(ii)(A) starts from the premise that the proceeding in the Federal Court is within jurisdiction by operation of the Cross-vesting Act and asks whether in the opinion of the Court the proceeding or a substantial part of it would have been incapable of being instituted in the Federal Court apart from the Cross-vesting Act. The notion reflected in consideration 5(4)(b)(ii)(A) is that if the proceeding or a substantial part of it could not have been commenced in the Federal Court but for the utility of the Cross-vesting Act, prima facie the proceeding, within jurisdiction for that reason, more properly, in the interests of justice, has a justiciable home in the Supreme Court of Queensland. 93 Consideration 5(4)(b)(ii)(B) requires the Federal Court to form a view about whether the Federal Court proceeding or a substantial part of it would have been capable of being instituted in the Supreme Court apart from the Cross-vesting Act (and other nominated laws). Clearly, a proceeding concerned with the conduct pleaded in the proposed amended statement of claim of 17 May 2011 would have been capable of being instituted in the Supreme Court of Queensland apart from the Cross-vesting Act. The proceeding, as commenced on 7 January 2009, in which Mareva orders were sought might properly have been commenced in the Supreme Court of Queensland. The Zabusky parties would no doubt have encountered the difficulty of such a proceeding being characterised as a re-agitation of the stay application in which they had been unsuccessful and in respect of which an appeal lay to the Court of Appeal, as was ultimately prosecuted. However, consideration 5(4)(b)(ii)(B) starts from the premise that the relevant proceeding in the Federal Court is a proceeding properly engaging the jurisdiction of the Federal Court but one in which the proceeding or a substantial part of it would have been capable of also being instituted in the Supreme Court. That is not this case. 94 Consideration 5(4)(b)(ii)(C) requires the Court to form a view about whether the matters for determination in the Federal Court proceeding are matters arising under or involving questions as to the application, interpretation or validity of a law of the State of Queensland. The proceedings in this Court involve causes of action which all involve solely questions as to the application, interpretation or validity of laws of the State of Queensland. 95 Consideration 5(4)(b)(ii)(D) requires the Court to have regard to the interests of justice. 96 Having regard to each of those four considerations, the Court must determine whether it appears to the Federal Court that it is more appropriate that the Federal Court proceeding be determined by the Supreme Court of Queensland. I am not satisfied that consideration 5(4)(b)(ii)(A) has any application in the circumstances of this case and it seems to me that consideration 5(4)(b)(ii)(B) has no application. Moreover, it does not appear to me, having regard to the interests of justice, that it is more appropriate that the Federal Court proceeding be determined by the Supreme Court, as the Federal Court proceeding is an abuse of process. 97 It follows that it does not appear to me that it is more appropriate that the Federal Court proceeding be determined in the Supreme Court of Queensland having regard to the integers governing s 5(4)(a) and (b)(ii) of the Cross-vesting Act. 98 In considering the matters arising under s 5(4) of the Cross-vesting Act, no question of a discretion arises. The question is whether the identified criteria "appear" to the Federal Court and if so an imperative obligation arises to make a transfer order, assuming s 5(4) is engaged on the footing that the proceeding regularly engages the Court's jurisdiction.

[28]

Section 5(4)(a) and (b)(iii) 99 Consideration 5(4)(b)(iii) requires the Court to determine whether it is otherwise in the interests of justice that the Federal Court proceeding be determined by the Supreme Court of Queensland. I am not satisfied that it is in the interests of justice that the Federal Court proceeding, called in aid in the way undertaken by the Zabusky parties with a view to depriving the van Leeuwen parties of the benefit of orders they obtained in the Supreme Court on the merits, be determined by the Supreme Court of Queensland. 100 Accordingly, I refuse leave to amend the statement of claim in terms of the proposed amended statement of claim dated 17 May 2011. 101 I strike out the Federal Court proceeding on the ground that the proceeding fails to regularly engage the jurisdiction of this Court as the proceeding raises no element of federal jurisdiction. Because the proceeding raises no element of federal jurisdiction, s 5(4) of the Cross-vesting Act is not engaged and although the proceeding is a pending proceeding as a question of fact, s 5(4) operates on the premise or assumption that the principal proceeding regularly engages the jurisdiction of the Federal Court. 102 Since s 5(4) is not engaged, there is no power to transfer the proceeding to the Supreme Court of Queensland and the transfer application must be dismissed. On the assumption that s 5(4) is engaged, the relevant criteria do not "appear" to me in the sense contemplated by Gummow J at [62] in BHP v Schultz. On that ground also, the transfer application must be dismissed. 103 Since I am satisfied that the proceeding in this Court was commenced in circumstances of an abuse of process, I am satisfied that the appropriate exercise of the discretion as to costs is that the Federal Court proceeding be struck out with an order that the Zabusky parties pay the costs of the van Leeuwen parties of and incidental to the proceeding on an indemnity basis, including the costs of the strike-out application. 104 The Zabusky parties will be ordered to pay the costs of the van Leeuwen parties of and incidental to the transfer application under the Cross-vesting Act. I certify that the preceding one-hundred and four (104) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.

Amalia Investments Ltd v Virgtel Global Networks N.V.

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