- Ascot Investments Pty Ltd v Harper

Judgment 1By Notice of Motion dated 15 November 2013, the Applicants, Mrs Yaying Lu ("YL") and Mrs Leiping Huang ("LH") seek leave to file and serve a Cross-Claim in these proceedings ("Corporations List Proceedings") and an order that these proceedings and proceedings number 2013/222537 ("Caveat Proceedings") be heard together, the evidence in one to be the evidence in the other. Background 2The dispute which gives rise to this application has a long and complex history and has been and is the subject of other proceedings in this Court. YL, LH and Mr Lawrence Xu ("LX") entered an arrangement in 2006 in respect of a proposed real estate development in Hurstville, which contemplated that a company limited by shares would be formed, each party would contribute capital to that company and that land would be acquired and developed. That arrangement was documented, in a somewhat informal manner, in a short document headed "Three Party Agreement on Real Estate Development Project" dated 29 November 2006. Disputes subsequently arose in respect of the manner in which the land was acquired and held. 3YL and LH then brought proceedings 5209 of 2008 in the Equity Division of this Court ("First Proceedings") in respect of the dispute, in which Gzell J delivered judgment on 31 March 2010 ([2010] NSWSC 228). Broadly, his Honour found that the relevant arrangements contemplated that YL and LH would each contribute AUD$4 million to, and LX would contribute $2 million to and raise a further $20 million in respect of, the cost of the development. His Honour found that a company, Hua Cheng Property Pty Limited ("HCP") was incorporated in respect of the venture and 40 shares were issued to each of YL and LH and 20 shares to LX. However, HCP did not acquire the land, which was instead acquired by Hua Cheng International Holdings Pty Limited ("HCIH"), in which LX and his former wife, Hong Xia Xia ("HXX") held shares and, at one point, YL also held shares. 4His Honour found that LX later advised YL and LH that construction costs in respect of the development would be substantially higher than the amount originally anticipated and that they would be required to fund those additional costs. Instead, agreement was reached for YL and LH each to transfer 20 of the 40 shares which they respectively held to LX, on the basis that he would assume a larger share of the project and its costs, which the result that he held 60 shares and YL and LH each then held 20 shares each in HCP. His Honour accepted LX's evidence that costs of $16.5 million had already been incurred on the project, of which $8 million had been contributed by YL and LH and $4.2 million by a loan from Westpac, and his Honour inferred that LX had contributed the balance. His Honour held that HCIH held the land in trust for HCP and made certain additional orders, including that LX and HXX cause YL and LH to be appointed as directors of HCP. 5In September 2012, HCP lodged a caveat ("Caveat") in relation to the land based on its interest arising under the trust arising from the judgment in the First Proceedings. On 5 November 2012, HCIP issued a lapsing notice in relation to the Caveat and, on 6 December 2012, the Court extended the operation of the Caveat subject to further order. 6On 10 January 2013, LX transferred three ordinary shares in HCP to HXX. That transfer was purportedly made pursuant to consent orders which had been made by the Family Court in October 2008 in divorce proceedings between HXX and LX, which were subsequently varied by the Family Court, also by consent, on 22 January 2013 to provide for the transfer of the three shares by LX to HXX. Those orders did not involve any determination on the merits by the Family Court and YL, LH and HCP were not afforded any opportunity to be heard in respect of the extent to which those orders might affect their interests. Clause 34(1) of HCP's constitution provides that: "The Directors in their absolute and uncontrolled discretion may refuse to register any transfer of shares without assigning any reason therefore." LX did not seek the approval of HCP's directors for the registration of the transfer of the three ordinary shares in HCP to HXX, but procured the registration of HXX as a shareholder of HCP without such approval and with the result that the quorum for a shareholders meeting would be satisfied without the attendance of YL or LH at such a meeting. 7Mr Studdy and Mr Tobin, who appear for YL and LH, submit, and I accept that, the Family Court did not have power to order LX to bring about the registration of the transfers which could not occur without the consent of the HCP's board by reason of clause 34 of HCP's constitution: Ascot Investments Pty Ltd v Harper [1981] HCA 1; (1981) 148 CLR 337 at 343-344, 354-355. Mr Sneddon, who appears for HXX, accepted in submissions that the transfer of shares by LX to HXX, while contemplated by the consent order made by the Family Court, reflecting the agreement of LX and HXX, was of the same character as a voluntary transfer of shares between those parties that was not the subject of such an order. 8A shareholders meeting of HCP was then convened on 9 February 2013 and attended by LX and HXX (by proxy), but not by YL and LH, and two new directors of HCP, including LX's son, were appointed so that LX and the two new directors constituted the majority of HCP's board. A subsequent directors meeting attended by LX and those two directors noted that the Caveat "may become an issue for refinancing" and foreshadowed an application to the Court to have the Caveat removed to allow a refinancing to proceed. No such application to the Court was made. That board meeting did not purport to authorise the removal of the Caveat, which was nonetheless purportedly withdrawn, and the land was then mortgaged to a third party to secure development finance. 9In March 2013, Brereton J made orders for accountants appointed by YL and LH to inspect HCP's financial records. On 2 July 2013, YL and LH also brought a further application ("Rectification Proceedings") under s 175 of the Corporations Act (2001) Cth seeking rectification of HCP's register of members so as to delete the reference to HXX as a holder of three shares in HCP (reflecting the transfer of shares by LX to HXX) and seeking declarations as to the invalidity of the appointment of the two additional directors to HCP's board. On 14 August 2013, White J set aside the registration of the transfer of shares to HXX and held that the appointment of the two additional directors to HCP's board was also invalid. LX subsequently sought the board's approval for the transfer of those shares, which has been refused. 10By Summons filed on 22 July 2013, HCP, YL and LH sought declarations in the Caveat Proceedings that LX had contravened ss 180-182 of the Corporations Act and acted in breach of trust by, inter alia, causing the Caveat to be removed and causing HCIP to grant security over the land in favour of a third party and that LX and the two additional directors appointed to HCP had also acted in breach of trust in granting the relevant security and also sought injunctive relief and equitable compensation. 11Subsequently, by Originating Process filed on 30 August 2013 in the Corporations List Proceedings, HXX sought orders under s 1071F of the Corporations Act that HCP has, without just cause, refused to register the transfer of the three ordinary shares in HCP by LX to her and an order that HCP should register the transfer and take certain associated steps. Section 1071F of the Corporations Act relevantly provides that, if directors have authority to register a transfer and refuse to do so, the transferee may apply to the Court for an order under that section and, if the Court is satisfied that the refusal was without just cause, the Court may inter alia order that the transfer be registered. A corporation and its directors do not strictly need to establish just cause in order to support a refusal to register a transfer for the purposes of that section; however, the case law recognises that, once it appears objectively that there is no such just cause, an evidentiary onus may readily shift to the directors to require them to establish that cause and a failure to give reasons for refusing to register the transfer may assist a Court in drawing an inference that there is no good reason in the context of the evidence as a whole: Roberts v Coussens (1991) 25 NSWLR 171; (1991) 6 ACSR 44; Leaver v Taxis Combined Services (Launceston) Pty Ltd [2002] TASSC 2; (2002) 10 TasR 362; Beck v Tuckey Pty Ltd [2007] NSWSC 1065; (2007) 213 FLR 152 at [9]. The application for leave to file the Cross-Claim in the Corporations List Proceedings 12As I noted above, YL and LH now seek leave to file and serve a Cross-Claim in the Corporations List Proceedings, which is required because that Cross-Claim was not filed within the time specified in the Uniform Civil Procedure Rules 2005 (NSW). The proposed Cross-Claim seeks declarations that LX holds the 20 ordinary shares in HCP previously transferred by YL to LX on trust for YL, holds the 20 ordinary shares in HCP previously transferred by LH to LX on trust for LH, or alternatively an order for specific performance of the alleged obligation of LX to fund the development of the land as to 60% as, they allege, Gzell J determined he was obliged to do in the First Proceedings. Orders are also sought restraining the appointment of directors of HCP other than LX, YL and LH, restraining further dealings in respect of the land and declaring that HCP's directors had just cause to refuse to register the transfer of the three shares by LX to HXX. That last order is the converse of the relief sought by HXX in the Corporations List Proceedings. 13YL and LH rely on their affidavits affirmed 15 November 2013 and on an affidavit of their solicitor, Mr Owen Anderson, sworn 15 November 2013 in support of the application. HXX relies, in opposition to the motion, on her affidavit dated 30 August 2013, which sets out, albeit by cross-reference to her affidavit in the Rectification Proceedings, the basis on which she contends the transfer of the shares to her should have been approved. HXX also relies on the affidavit of her solicitor, Wen Qing Chen, in opposition to the application. 14YL and LH explain their delay in filing the Cross-Claim, which is the immediate cause of their need for leave to file it, by reference to the difficulties of conduct of complex litigation where both YL and LH are resident in China and neither of them speaks English so they must deal with their solicitors through interpreters, and by reference to the fact that the extent of the suggested overlap between the relevant issues was identified in preparing evidence to respond to HXX's application. I accept that these matters provide sufficient explanation of that delay, although they do not address the substantive question as to whether the matters raised in the proposed Cross-Claim are in fact properly raised in the Corporations List Proceedings. 15YL and LH contend that the Cross-Claim raises substantially overlapping factual issues with the matters raised by HXX in the Corporations List Proceedings. Mr Studdy submits that the factual matrix comprising the incorporation of HCP as, YL and LH contend, a joint venture vehicle, the obligations of the parties to that venture, the previous involvement of LX and HXX with the invalid appointment of additional directors to HCP and the removal of the Caveat and grant of further security, would be relevant to whether just cause existed for HCP's board to refuse approval of the relevant transfer. Mr Studdy also submits that YL and LH will also rely on their loss of confidence in LX, and the mechanism to determine disputes between YL, LH and LX by reference to a referee established by the orders in the First Proceedings, and contend that the introduction of HXX as a fourth party in a similar interest to LX would be inconsistent with the regime established by those orders. 16Mr Studdy also submits that orders sought in the Cross-Claim, including in respect of LX's alleged obligation to contribute additional funding to the development, will be relevant to whether just cause existed to refuse to register a transfer of the shares which would separate the funding obligation which would arguably remain with LX and ownership of the three shares which were transferred to HSX. Mr Studdy also submits that the contention in the Cross-Claim that LX did not make any capital contribution as contemplated by the joint venture arrangements, or at least that there is no accounting record of such a contribution - which may, on its face, to be contrary to Gzell J's acceptance of LX's evidence in this regard in the First Proceedings - is also relevant to the relief sought by HXX, since HCP's directors would more readily establish just cause to refuse to register the transfer of the shares to HXX if, as they contend, a substantial portion of the shares held by LX are held on trust for them. 17On the other hand, HXX opposes the application for leave to file the Cross-Claim on the basis, first, that the Cross-Claim raises separate issues to the claims made by HXX in the Corporations List Proceedings. Mr Sneddon submitted that the issues raised by the proposed Cross-Claim, other than the last order sought (to which I referred in paragraph 12 above) relate to the conduct of LX rather than HXX. Mr Sneddon also submitted, in oral submissions, that there was a complete disparity between HXX's claim and the other claims which were the subject of the proposed Cross-Claim and the Caveat Proceedings. However, that submission was qualified by Mr Sneddon's initial recognition that the constructive trust claimed in the proposed Cross-Claim would affect the three shares sought to be transferred to HXX, although he subsequently qualified that position by contending that a declaration of a constructive trust would not, or would not necessarily, affect HXX so far as that constructive trust was imposed on shares other than the three shares which she seeks to have transferred to her. He acknowledged, however, that the restraint sought in the proposed Cross-Claim in respect of the appointment of directors would affect HXX, at least so far as she wanted to be (or, I interpolate, to appoint) a director of HCP and more generally in connection with the rights attached to the shares which would be restricted by the injunctive relief sought in the proposed Cross-Claim. 18Mr Sneddon also contended that, so far as YL and LH contended that they were entitled to refuse to register the share transfer because there was a quasi-partnership between LX, YL and LH in a corporate form, they could put on limited evidence in opposition to HXX's application. I accept that is a possibility. However, it would also be open to YL and LH, as they do, to resist HXX's application on the wider basis identified by Mr Studdy and reflected in their affidavits and the documentation exhibited to them. 19HXX also 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, 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 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 of leave to file the Cross-Claim. It seems to me at least seriously arguable that, as Mr Studdy submits, substantial aspects of the relief sought are either consequential on the orders made in the First Proceedings or result from subsequent developments. Mr Sneddon 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, but instead to any strike-out application which might later be brought in respect of the Cross-Claim. 20HXX also contends that she will be exposed to paying greater costs if the proposed Cross-Claim is heard together with her claim in the Corporations List Proceedings. Her solicitor, Wen Qing Chen, gives evidence of an estimate that the hearing of HXX's application would be one day and estimated costs would be $12,000-$15,000 if leave to file the proposed Cross-Claim is not given, and that the estimated length of the hearing would be 6 days and estimated costs for HXX would be between $80,000-$100,000 (in each case excluding GST) if leave to file the proposed Cross-Claim is given. It seems to me that those estimates must necessarily assume that, if leave to file the Cross-Claim were not given, YL and LH would not seek to establish that HCP's board had just cause to refuse the registration of the transfer by reference to the history of their dealings with LX and HXX, including the circumstances in which shares were previously transferred, new directors appointed, the Caveat was removed and security was granted over the land. However, there seems to me to be no reason to assume the Defendants would adopt that approach, even if leave to file the proposed Cross-Claim was not given, where Mr Studdy contends that they will in fact rely on those matters to establish just cause, and the affidavits of YL and LH refer to the history of those matters at some length and exhibit the relevant documents. The more likely position is that, as Mr Studdy contends, they will in fact rely on the history of those matters to establish just cause and, if that history is contested by HX, then the matter would take significantly longer than the one day estimate and most or all of the 6 days estimated by HXX's solicitor for a hearing involving the Cross-Claim, whether or not the proposed Cross-Claim is filed. 21Moreover, if the matters raised by the proposed Cross-Claim were otherwise to be the subject of separate proceedings brought by YL and LH, then HXX seems to be a necessary or proper party to those other proceedings, and would face the costs not only of the one day hearing of her application but also the separate hearing of the matters raised by the proposed Cross-Claim. Further, if there are issues raised by the proposed Cross-Claim to which, contrary to my view, HXX does not have a proper interest, it may be possible to manage the hearing so that they are addressed separately and she is not required to be present. 22Mr Rollinson appears on behalf of LX, the two new directors appointed to HCP, Mr Thomas Xu and Ms Qiao Wang, and HCIP in opposition to the application. Mr Rollinson adopted Mr Sneddon's submissions to which I have referred above. He also contended that the matters now sought to be raised by YL and LH reagitate 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 LX 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, to which I have referred above. Mr Studdy in turn contests the proposition that the findings of Gzell J in the First Proceedings determine whether LX has in fact made the contributions which YL and LH contend that he was obliged to make, and contest the suggestion that Gzell J's findings bind YL and LH as to the amounts contributed by LX. He submits that whether the amount of $4.3 million to which Gzell J referred is inconsistent with YL's and LH's allegations in the proposed Cross-Claim that a first tranche of $2 million and a second tranche of $10 million committed by LX have not been made will be a matter for evidence, not a reason to exclude the Cross-Claim at this point. 23I accept that it is at least arguable that there is an overlap between Gzell J's findings and the question of the contributions made by LX, particularly in respect of the alleged commitment by LX 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 LX was obliged to make a further capital contribution as the basis of the transfer of 20 shares by YL and 20 shares by LH to him. I do not consider that it is so clear that this matter has already been determined adversely to YL and LH as to require that leave to file the proposed Cross-Claim be withheld. 24I am required to exercise my discretion whether to grant leave to file the Cross-Claim having regard to ss 56-58 of the Civil Procedure Act 2005 (NSW) and specifically the overriding purpose and the objectives of case management. Section 56 of the Civil Procedure Act provides that the overriding purpose of the Act and the rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in dispute in the proceedings. The Court is required to give effect to the overriding purpose when it exercise any power given to it by the Act or by the rules of court. Section 58 provides that the Court, in deciding whether to make any order or direction for the management proceedings, must act in accordance with the dictates of justice. For the purpose of determining what are the dictates of justice in a particular case, the Court must have regard to the provisions of ss 56 and 57, and may have regard to specified matters. 25A cross-claim may generally be brought against parties other than the plaintiffs in proceedings where the relief claimed relates to, or is connected with, the plaintiffs' claim under the First Proceedings. In the present case, HXX's claim is that, in effect, HCP's board (the majority of which comprised YL and LH) did not have just cause to refuse to register the transfer of the three shares in HCP from LX to HXX. I accept that, where YL and LH seek to justify the decision to refuse registration of the transfer to HXX by their evidence, there is, at least potentially, a degree of overlap between the application made by HXX under s 1071F of the Corporations Act and the issues proposed to be raised in the Cross-Claim. Mr Sneddon properly acknowledged, in oral submissions, the risk of inconsistent findings on factual matters if the proposed Cross-Claim proceeded in its present form, separately from the Corporations List Proceedings, and also properly conceded that the Court would generally seek to avoid such a result. I am comfortably satisfied that, with one qualification to which I will now refer, the just, quick and cheap resolution of the matters in dispute between the parties would be promoted by granting leave to file the Cross-Claim. 26That qualification is that there is a substantial degree of overlap between the matters raised in the Caveat Proceedings commenced by YL and LH and the matters raised in their proposed Cross-Claim. As I noted above, the proposed Cross-Claim addresses the earlier dealings between LX on the one hand and YL and LH on the other, which were also at issue in the First Proceedings, and also seeks orders arising out of more recent events, including restraining the appointment of directors of HCP other than LX, YL and LH. The relief sought by YL and LH in the Caveat Proceedings is in turn directed to more recent events, including those removal of the Caveat and the grant of a mortgage over the land in favour of a third party. In my view, the purposes contemplated by s 56 of the Civil Procedure Act require consolidation of the allegations in the Caveat Proceedings and the proposed Cross-Claim in a single pleading. I do not consider that those purposes would be served by granting leave to file the proposed Cross-Claim in a manner that would potentially leave overlapping factual issues bifurcated between matters to be determined by proceedings brought by Summons in the Caveat Proceedings and by the Cross-Claim in the Corporations List Proceedings. It seems to me that the preferable course is to grant leave to file the proposed Cross-Claim on condition that it should be amended to plead the matters presently raised in the Caveat Proceedings. Whether the Caveat Proceedings and the Corporations List Proceedings should be heard together 27YL and LH also seek to have the Corporations List Proceedings and the Caveat Proceedings heard together. I did not understand either HXX or LX and the parties associated with him to contend that the Caveat Proceedings should not be heard together with the Corporations List Proceedings and the Cross-Claim, if leave were to be granted to file the Cross-Claim in the Corporations List Proceedings. 28There is, in my view, a compelling case for an order than the Caveat Proceedings and the Corporations List Proceedings should be heard together. First, as Mr Sneddon ultimately accepted in his submissions for HXX, HXX is a necessary or proper party to the matters alleged in the proposed Cross-Claim, since the relief sought would affect the exercise of the rights attached to the shares she seeks to have transferred to her. If those matters are now raised in a consolidated pleading of the Cross-Claim and the matters raised in the Caveat Proceedings, HXX would be a necessary or proper party to those proceedings, as well as the Plaintiff in the Corporations List Proceedings. Second, the evidence led in the Corporations List Proceedings, the proposed Cross-Claim and the Caveat Proceedings would canvass, at least to some extent, the same events between the same participants and separate hearings of those matters would involve wasted costs for all parties, the inefficient use of Court time and the risk of inconsistent findings between two Judges determining substantially the same factual issues. Orders 29I will hear the parties as to appropriate orders to be made to give effect to this judgment and the directions that should be made as to the future conduct of the proceedings.