BEIJING JOSEPH INVESTMENT CO LTD -v- STARR WORLD INVESTMENT LTD [No 2] [2015] WASC 186 (27 May 2015)

4 On 12 October 2014 the plaintiffs issued a summons out of the Supreme Court of New South Wales. The relief claimed against all defendants was an injunction restraining them from dealing with shares in the second defendant held by the first defendant, dealing with any subscription payments and enforcing the demand for the subscription fees of 2 October 2014. The summons also sought a declaration that shares held by the first defendant in the second defendant were held on trust for the plaintiffs, damages and equitable compensation.

5 The bases of the plaintiffs' claims at that time were explained in an affidavit of Wilson Shen sworn on 11 October 2014. As against the first and third defendants, the claim was based on an allegation that the first defendant obtained its interest in the second defendant 'by taking the financial benefit of a business opportunity of the plaintiffs and using confidential information of the plaintiffs that was gained by [the third defendant] in the course of his engagement and employment as the chief executive officer of' a company in the first and second plaintiffs' group.

6 As against the second defendant, the basis of the claim was that the second defendant had misrepresented to shareholders that the plaintiffs did not wish or intend to take up any opportunity for further investment in the second defendant, in order to obtain shareholder approval of the issue of shares to the first defendant. It was also alleged that the board of the second defendant did not act in the best interests of the second defendant in making the placement offer to the first defendant, as the plaintiffs or their nominees were willing to invest further in the second defendant on more favourable terms.

7 Following a number of procedural steps which I have described elsewhere,[1] on 11 December 2014 Robb J made an order transferring the proceedings to this court pursuant to s 5(2) of the Jurisdiction of Courts (Crossvesting) Act 1987 (NSW).

8 When the matter came on before me for directions on 4 February 2015, I made various programming orders. Orders 4 6 provided for the filing of a statement of claim by 18 February 2015, defences and any counterclaim by 4 March 2015 and any reply and defence to counterclaim by 18 March 2015.

9 On 17 February 2015, the plaintiffs filed a notice purporting to wholly discontinue their action against all defendants. On 25 March 2015 I declared that the notice was invalid and ineffective to discontinue these proceedings, on the basis that the required leave of the court had not been obtained. The plaintiffs then indicated that they sought leave to discontinue the proceedings. I directed the parties to confer in relation to the discontinuance of the proceedings and adjourned the directions hearing to 15 April 2015.

10 On 1 April 2015, the second and fourth defendants filed their defence and the second defendant's counterclaim in the proceedings. The defence noted that a statement of claim had not been filed and denied that the plaintiffs were entitled to the relief claimed in the summons except to the extent that relief had already been granted. The counterclaim made a claim for sums said to be due by the plaintiffs under the placement agreements, in the total amount of $3 million.

11 The parties put forward competing minutes of proposed orders at the directions hearing on 15 April 2015. Both minutes provided for the plaintiffs to be given leave to discontinue its claim against all defendants, subject to conditions. However, the terms of the orders providing for discontinuance of the plaintiffs' claim differed in certain respects, to which I will come. More substantively, the plaintiffs indicated that they challenged the validity of the second defendant's counterclaim, and said that no orders should be made in respect of it. The second defendant sought orders requiring the plaintiffs to file a defence to the counterclaim and listing the proceedings on the counterclaim for further directions.

12 The practical significance of the debate as to the validity of the counterclaim concerns service. The first and third plaintiffs are companies incorporated in the People's Republic of China, while the second plaintiff is a company incorporated in the British Virgin Islands. None of the plaintiffs appear to have any substantial presence in Australia. The second defendant seeks to avoid the difficulties in serving new process on the plaintiffs. It seems clear that the plaintiffs' submissions that the counterclaim is invalid are motivated by their desire to take advantage of the existence of those service difficulties.

13 After hearing some oral submissions on 15 April 2015, I adjourned the matter to give the parties an opportunity to file written submissions in relation to disputed matters.

14 When dealing with the validity of the notice of discontinuance, I identified the potential sources of this court's jurisdiction in these proceedings, but did not resolve the question of whether this court is exercising federal jurisdiction.

15 In their submissions relating to the validity of the counterclaim the parties took different positions as to the source of this court's authority to decide the present proceedings. The second and fourth defendants contended that the matter was in federal jurisdiction, apparently on the basis that it concerned a 'matter ... arising under any laws made by [the Commonwealth] Parliament'.[2] The plaintiffs denied that the matter was in federal jurisdiction, and also contended that I did not need to decide the matter.

16 The submissions on the question of whether the proceedings involve the exercise of federal jurisdiction were rather limited. Because the plaintiffs contended that I did not need to decide the question, their submissions did not really engage with the issue. The second and fourth defendants' submissions did not identify any particular provisions of the Corporations Act to which a right, duty or liability at issue in the proceedings owed its existence.[3] Nor were any submissions advanced on the issue of whether the proceedings may involve the exercise of federal jurisdiction on that basis that the subject matter of the placement agreements owed its existence to federal law.[4] The second and fourth defendants also contended that the plaintiffs' claim invoked nonfederal jurisdiction under s 16 of the Supreme Court Act 1935 (WA) exercisable concurrently with federal jurisdiction, a proposition which seems inconsistent with the decisions of the High Court in Felton v Mulligan[5] and Moorgate Tobacco Co Ltd v Philip Morris Ltd.[6]

17 Given that the issue is contentious, that I have received limited submissions on the question and no notices have been issued under s 78B of the Judiciary Act 1903 (Cth) in relation to the issue, which may involve the interpretation of s 76(ii) of the Constitution, I do not propose to resolve the question of the source of my authority to adjudicate in these proceedings. I agree with the plaintiffs' submissions that it is not necessary for me to resolve that question in order to deal with the issues immediately in dispute.

18 In my view, the second defendant's counterclaim has been validly made in the current proceedings. The counterclaim was filed in accordance with the authority of order 5 of the orders I made on 4 February 2015 (Order 5). That order relevantly required the defendants to file any counterclaim by 4 March 2015. While the counterclaim was not filed within the required time, that defect can be cured by an order extending the time for the second defendant to file its counterclaim to 1 April 2015.

19 My authority to make Order 5 was conferred by O 4A r 5(1)(d) of the Rules of the Supreme Court 1971 (WA) (Rules). That subrule empowers me to make 'any case management direction the Court considers just'. A case management direction is defined by O 4A r 2(1) to be any procedural direction that in the court's opinion it is just to make in a case to facilitate the attainment of the objects referred to in O 1 r 4B(1). Those objects include 'promoting the just determination of litigation', 'disposing efficiently of the business of the Court' and 'maximising the efficient use of available judicial and administrative resources'.

20 The question of the plaintiffs' liability to make payments provided for in the placement agreements was raised by their claim against the second defendant, in which they sought to restrain the second defendant from acting on the demand it had issued in respect of one of those agreements. The second defendant asserted that the plaintiffs were liable to make payments under relevant placement agreements and the plaintiffs denied that they were liable. The affidavit of Mr Shen sworn on 11 October 2014 and attached correspondence made it apparent that the plaintiffs' liability to make the payments was resisted by reference to the issue of shares to the first defendant. The validity of the second defendant's claim to those payments was an integral and inseparable part of the justiciable controversy which was the subject of the proceedings as commenced by the plaintiffs.

21 As the majority in Fencott v Muller noted:[7]

A judicial power which is not exercised to determine the whole of a controversy is, generally speaking, not appropriately and conveniently exercised. Not appropriately, because the controversy is not quelled; not conveniently, because the parties - the principal beneficiaries of the exercise of judicial power - must litigate anew to have the outstanding questions and issues determined.

22 While those comments were made in considering the extent of a 'matter' which may be the subject of federal jurisdiction, they are equally apposite in considering the exercise of non-federal jurisdiction. A central aspect of the exercise of judicial power - both federal and non-federal - is the quelling of justiciable controversies.[8] Such controversies can often only be resolved if the whole of the controversy is dealt with by the court. That proposition is illustrated by the present case. The controversy which is the subject of these proceeding comprehends the plaintiffs' liability to make payments under the placement agreements. That controversy cannot be wholly resolved simply by asking whether the plaintiffs can resist the second defendant's claim by reason of misleading statements, breaches of director's duties or other contraventions of the Corporations Act. The resolution of the controversy requires the court to also determine the extent to which the second defendant can enforce payment of the amounts it claims, and the quantification of those amounts.

23 The importance of judicial power being exercised so as to resolve the entire controversy which is the subject of curial proceedings is also reflected in the terms of s 24(7) of the Supreme Court Act. That section requires that:

The Court, in the exercise of the jurisdiction vested in it by this Act ... shall have power to grant, and shall grant, ... all such remedies whatsoever as any of the parties thereto may appear to be entitled to in respect of any and every legal or equitable claim properly brought forward by them in such cause or matter; so that, as far as possible, all matters so in controversy between the parties may be completely and finally determined, and all multiplicity of legal proceedings concerning any of such matters avoided.

24 The just determination of the present proceedings requires, in my view, that the second defendant have the opportunity to claim relief in respect of the subject matter of the proceedings, namely the controversy as to the plaintiffs' liability to make payments to the second defendant, and have that claim determined at the same time as the claim for relief made by the plaintiff. To deal with all claims in relation to that subject matter in the one set of proceedings, and at the same time, assists the court in efficiently disposing of its proceedings and maximising the efficient use of its resources, by avoiding the need for the second defendant to separately pursue its claim against the plaintiffs. Allowing the second defendant to make its claim for relief in respect of the placement agreements in these proceedings did, in my view, facilitate the attainment of the objects referred to in O 1 r 4B(1) of the Rules. Order 5 was a case management direction that I was authorised to make under O 4A r 5(1)(d) of the Rules.

25 In advancing the contrary submission, counsel for the plaintiff relies on the decision of the Full Court in Smith v Maloney.[9] In Smith, the court was concerned with orders that had been made by a registrar in proceedings commenced by originating summons. The orders included directions that the originating summons proceed as if begun by writ of summons and an order enabling the defendant in that case to file a counterclaim. It was argued in Smith that these orders were beyond power. The court ultimately held that the order that proceedings proceed as if commenced by writ was supported by O 58 r 27 of the Rules and, once such an order had been made, a direction could be made for the filing of a counterclaim.[10] In the course of reaching that conclusion, Malcolm CJ, with whom Kennedy and Ipp JJ agreed, observed:[11]

It was submitted that the first of the orders was not a 'case management direction' or a 'procedural direction' within the meaning of O 29A, r 3(1) and (2). It was further submitted that the enumerated directions referred to in r 3(2) were specific. There were no general provisions that could extend a case management direction by implication to all procedural orders within the power of the Registrar. ... Thus, while r 3(1) defines a case management direction as 'a procedural direction for the purpose of leading to the efficient and timely disposal of the proceedings', r 3(2) defines the scope of case management directions which may be given. It was submitted that the types of orders falling within the scope of a case management direction under r 3(2) do not include an order under O 58, r 27. In my opinion, that submission is correct. The nearest form of case management direction in r 3(2) which may be made by a Registrar is that under r 3(2)(b) which provides that a case management direction may 'order specified pleadings to be filed'. In my view, however, in the present context such a direction presupposes that an order has been made under O 58, r 27(1).

26 At that time, O 29A r 3 of the Rules relevantly provided that:

(1) A case management direction is a procedural direction for the purpose of leading to the efficient and timely disposal of the proceedings.

(2) A case management direction may -

(a) dispense with all or any or any further pleadings;

(b) order specified pleadings to be filed.

27 The view taken by Malcolm CJ was that r 3(2) exhausted the kinds of procedural directions that could be given under r 3(1), and that r 3(1) did not have an independent operation.

28 While that reasoning may have been valid for the now repealed O 29A r 3, it cannot be applied to O 4A r 2, which relevantly provides:

(1) A case management direction is any procedural direction that in the Court's opinion it is just to make in a case to facilitate the attainment of the objects referred to in Order 1 rule 4B(1).

(2) Without limiting subrule (1), a case management direction may do one or more of the following -

(a) give directions to assist the convenience of the parties or witnesses; ...

(c) dispense with all or any or any further pleadings;

(d) direct specified pleadings to be filed. (emphasis added)

29 The two rules are similar in many respects. However, importantly for present purposes, O 4A r 2(2) is expressed not to limit O 4A r 2(1). The addition of the emphasised words at the beginning of O 4A r 2(2) reverses the result reached in the construction of O 29A r 3 in Smith. Order 4A r 2(1) does have an independent operation which is broader than, and which is not limited by, O 4A r 2(2) of the Rules.

30 It was submitted by the plaintiffs, and I accept, that it was implicit in Smith that O 18 r 2(1) of the Rules only provides for the filing of a counterclaim in an action commenced by writ of summons. However, that does not preclude a case management direction being made allowing for the filing of a counterclaim and applying O 18 r 2 to the proceedings. That is particularly so in a context where the provisions of O 4A prevail over the other provisions of the Rules to the extent of any inconsistency (see O 4A r 4). A case management direction made under O 4A r 2(1) of the Rules can provide for the filing of a counterclaim in circumstances not provided for in O 18 r 2(1) of the Rules.

31 Further, in my view, there is no reason why an order that proceedings begun otherwise than by writ of summons proceed as if commenced by writ should be a precondition to the making of an order for the filing of a counterclaim under O 4A r 2(1) of the Rules.

32 Therefore, in my view, the counterclaim was validly filed in these proceedings. It is appropriate to make the programming orders sought by the second defendant in relation to that counterclaim. It is, therefore, unnecessary to consider the second defendant's alternative submissions about the trial of issues arising out of the evidence.[12]

33 The plaintiffs seek to discontinue their action against all defendants. The plaintiffs, the second defendant and the fourth defendant agree that leave to discontinue should be granted, but are in dispute as to the appropriate conditions.

34 The first and third defendants have not been served with the summons, or taken any active part in the proceedings. I see no reason why the plaintiffs should not be allowed to discontinue against those defendants.

35 The plaintiffs' claim against the second and fourth defendants stands on a different footing. They have incurred costs in securing the transfer of the present proceedings to this court. In those circumstances, as the plaintiffs accept, it is appropriate that discontinuance of the action against them should only occur on the condition that the plaintiffs undertake not to bring further proceedings in respect of their claims against them except in this court.

36 In my view, it is unnecessary for the plaintiffs to file a further undertaking, sought by the second and fourth defendants, affirming earlier undertakings as to damages, as the earlier undertakings will continue to operate after the proceedings have been discontinued in any event.[13]

37 As there has been no substantive trial or determination of the plaintiffs' claim for relief against the second and fourth defendants, there is no warrant for requiring the plaintiffs to file an undertaking not to commence further proceedings against those defendants at all, as sought by the second and fourth defendants. Other than securing the transfer to this court, the second and fourth defendants have not already gained any advantage relating to the substantive merits of the proceedings of which it would be unjust to deprive them.[14]

38 In any event, the resolution of the second defendant's counterclaim will finally resolve the controversy as to the plaintiffs' liability to make payments under the relevant placement agreements and the second defendant's right to receive those payments. Doctrines of res judicata, issue estoppel and abuse of process will then limit the further proceedings which the plaintiffs can properly commence.

39 I will therefore make an order for the discontinuance of the plaintiffs' action against the defendants in the terms sought by the plaintiffs. To avoid debate about the application of O 18 r 2(3), I shall also order that this discontinuance of the plaintiffs' action is without prejudice to the second defendant's right to proceed with its counterclaim.

40 The plaintiffs agreed that the injunctions granted by the Supreme Court of New South Wales should be discharged. I agree with the plaintiffs' contention that the reference in the orders, proposed by the second and fourth defendants, to the undertakings not being discharged or released is unnecessary. Neither the discontinuance of the plaintiffs' claim against the second and fourth defendants nor the discharge of the injunction could have that effect.

41 The second and fourth defendants seek that the name of the plaintiffs be defined by reference to the Chinese names, to avoid the confusion that has previously arisen in these proceedings as to the proper description of the plaintiffs and to aid enforcement of orders in the People's Republic of China. The plaintiffs point to the administrative and practical difficulties involved in the use of Chinese characters in resisting that approach.

42 In my view the concerns of both parties may be accommodated by ordering that the plaintiffs be described by their Chinese names and English translations of those names in the action, but ordering that court documents may use only the English translation of the names. This will allow, but not require, the second and fourth defendants to extract orders which contain a reference to the Chinese names while avoiding the administrative inconvenience apprehended by the plaintiffs.

43 For the above reasons, I propose to make the following orders, subject to hearing submissions as to their precise form:

1. The names of the plaintiffs and defendants by counterclaim be amended as follows:

(a) the first plaintiff and first defendant by counterclaim be 'Beijing Joseph Investment Co Ltd (北京约瑟投资有限公司)';

(b) the second plaintiff and second defendant by counterclaim be 'Joseph Investment International Limited'; and

(c) the third plaintiff and third defendant by counterclaim be 'Guangzhou City GuangRong Investment and Management Co., Limited (广州市广融投资管理集团有限公司)'.

1. The plaintiffs may be described in any document in or related to these proceedings by the English translation of their names only.
2. The time for the second defendant to file its counterclaim be extended to 1 April 2015.
3. The defendants by counterclaim file their defence to the counterclaim by 10 June 2015.
4. The matter be listed for further directions at 9.15 am on 17 June 2015.
5. The plaintiffs' action be discontinued, without prejudice to the second defendant's right to proceed with its counterclaim, subject to the plaintiffs giving an undertaking not to commence without the prior leave of this court any action against the second and fourth defendants in respect of the plaintiffs' claims against them in this action in any court other than this court.
6. Order 4(a) of the orders made in these proceedings by the Supreme Court of New South Wales on 13 October 2014, as varied by order 4 of the orders made by that court on 15 October 2014, be discharged.
7. The plaintiffs pay the costs of the second defendant and the fourth defendant to 25 March 2015, including all reserved costs to that date, to be taxed and paid forthwith.
8. The costs incurred by the parties after 25 March 2015 be reserved.

[1] Beijing Joseph Investment Co Ltd v Starr World Investment Ltd [2015] WASC 110 [6] [13].

[2] Section 76(ii) of the Constitution.

[3] See R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett [1945] HCA 50; (1945) 70 CLR 141, 154; LNC Industries Ltd v BMW (Australia) Ltd [1983] HCA 31; (1983) 151 CLR 575, 581; Agtrack (NT) Pty Ltd v Hatfield [2005] HCA 38; (2005) 223 CLR 251 [24].

[4] LNC Industries (581); DPP (WA) v Mansfield [2008] WASCA 5; (2008) 35 WAR 431, [111] [112].

[5] Felton v Mulligan [1971] HCA 39; (1971) 124 CLR 367, 373, 391 394, 411 412.

[6] Moorgate Tobacco Co Ltd v Philip Morris Ltd [1980] HCA 32; (1980) 145 CLR 457, 471 472, 479, 483.

[7] Fencott v Muller (1983) 152 CLR 570, 608.

[8] Huddart Parker & Co Pty Ltd v Moorehead [1909] HCA 36; (1909) 8 CLR 330, 357; Fencott (608); Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564, 582; Re McBain; ex parte Australian Catholic Bishops Conference [2002] HCA 16; (2002) 209 CLR 372, [61] [63], [242], [289].

[9] Smith v Maloney (1998) 19 WAR 209.

[13] Newcomen v Coulson (1878) 7 Ch D 764, 765; Ellendale Pty Ltd v Graham Matthews Pty Ltd (1986) 11 FCR 347, 348 349.

[14] See Heartlink Ltd v Jones [2007] WASC 254; (2007) 35 WAR 190 [45] [47]