//
[2020] VSC 517
General information, not legal advice.
Supreme Court of Victoria
2020-08-12
DELANY J
Original judgment source is linked above.
PRACTICE AND PROCEDURE - Application to transfer proceeding to Supreme Court of Western Australia - Whether in the interests of justice to transfer - No substantive connection to Victoria - Turns on own facts - Application granted -Jurisdiction of Courts (Cross-vesting) Act 1987 (Vic) s 5(2)(b)(iii).
CORPORATIONS - Proceeding commenced by ex parte company against director without grant of derivative leave - Subsequent grant of leave permissible - Leave application not determined - South Johnstone Mill Ltd v Dennis [2007] FCA 1448; (2007) 163 FCR 343 referred to.
1 On 26 June 2020, on the hearing of an ex parte application by the plaintiffs, I made freezing orders against the defendants. Reasons for my decision were made available to the parties. Those reasons included the following:
2 On 2 July 2020, the defendants, having appeared in the proceeding, consented to the extension of the freezing order until 24 July 2020 or further order and to orders that they file and serve both affidavits in opposition to the freezing order and an affidavit deposing to their assets in Australia, giving their value, location and details.
3 On 24 July 2020 when the matter came back to Court, all parties were represented by counsel. The freezing order against the defendants was extended until further order, and the date for the filing of affidavits was extended to 31 July 2020. The Court made orders concerning the making by the defendants of any application under the Jurisdiction of Courts (Cross-vesting) Act 1987 (Vic) to cross-vest the proceeding to the Supreme Court of Western Australia. I ordered that the cross-vesting application would be determined on the papers unless the parties informed the Court or the Court determined that a hearing was necessary.
4 The first plaintiff, Sakura Energy Australia Pty Ltd ('SEA') was incorporated on 12 January 2019. Mr Liang is the sole director of SEA and is the holder of 51% of the shares in that company.
5 The second plaintiff, Sakura Energy WA Pty Ltd ('SEWA') was incorporated on 1 April 2019. Mr Liang is one director of that company, the other is the first defendant Mr Yu. The plaintiffs allege that Mr Yu was the business development manager of SEWA following its incorporation, was appointed managing director of SEWA on 8 November 2019 and since that time has had the day-to-day conduct of the business of that company in Western Australia.
6 Mr Liang is a 47% shareholder in SEWA. He holds 50 shares in SEWA, Mr Yu holds five shares and 25 shares are held by each of Mr Li (the second defendant) and Ms Zhuang. Ms Zhuang is the wife of the third defendant, Mr Zhao. She is not a party to the proceeding.
7 Mr Zhao is a former director and company secretary of SEWA. Mr Zhao has been the sole director and shareholder of Eco Sakura Energy Pty Ltd ('ESE'), the fourth defendant, since its incorporation on 19 January 2020.
8 The evidence establishes that SEA is the distributor in Australia of certain photovoltaic ('PV') products made by a Chinese manufacturer. SEA supplies PV products including solar panels, inverters and racking systems at cost to SEWA which in turn on sells those products to customers in Western Australia.
9 The endorsement of claim alleges that between at least March 2020 and May 2020 SEWA placed orders with SEA and that following the supply of products pursuant to those orders, Mr Yu issued invoices purportedly on behalf of SEWA to customers of that company for the supply of product, but the invoices in fact contained bank account details (for the receipt of funds) of ESE rather than the bank account of SEWA.
10 By that means it is alleged that funds properly the funds of SEWA or to which it was entitled were diverted by Mr Yu to ESE. Such conduct, if established, would be conduct in breach of director's and fiduciary duties engaged in by Mr Yu.
11 On the plaintiffs' case, the recipient of those moneys, ESE, is a party who has received the payments and revenue resulting from these actions and has thereby received property of SEWA. The endorsement of claim alleges breaches of duties by Mr Yu and knowing receipt by ESE.
12 The endorsement of claim further alleges that in the same period Mr Yu received orders from customers of SEWA for the supply of products but instead diverted those orders to ESE. Once again, an allegation is made of breach of director's statutory and fiduciary duties.
13 It is further alleged that Mr Yu has received commissions to which he was not entitled from SEWA and in that way has used funds of the SEWA business dishonestly and fraudulently for his own purposes, in breach of statutory and fiduciary duties.
14 It is alleged that Mr Li, as an employee of SEWA owed statutory and fiduciary duties and that in breach of those duties he was the person responsible for transferring commissions to Mr Yu, to which Mr Yu was not entitled.
15 The claim against Mr Zhao is for his involvement as director and shareholder of ESE in the conduct of which the plaintiffs complain.
16 On 31 July 2020, the defendants issued a summons to cross-vest the proceeding to the Supreme Court of Western Australia pursuant to s 5(2)(b)(iii) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Vic) ('the Act').
17 In support of the application to cross-vest, the defendants rely upon the following affidavits:
(a) the affidavit of Yichen Yu affirmed 30 July 2020; and
(b) the affidavit of Lichen Zhao affirmed 21 July 2020.
18 The plaintiffs filed an affidavit of Liang Wang dated 7 August 2020 in opposition to the cross-vesting application.
19 Both parties filed written submissions. Neither party requested an oral hearing.
20 Separately, the defendants filed submissions in opposition to the extension of the freezing order. The plaintiffs responded to those submissions, including by saying that if the Court is minded to consider the submissions seeking a discharge of the freezing orders, then the plaintiffs would wish to have an opportunity to be heard on that application.
21 Whether or not a hearing on that topic is either necessary or appropriate depends on whether or not the proceeding should be cross-vested to the Supreme Court of Western Australia. If the proceeding is to be transferred, then the proper venue for any application for discharge to be heard and determined is by the Supreme Court of Western Australia.
22 Section 5(2)(b)(iii) of the Jurisdiction of Court (Cross-vesting) Act 1987 (Vic) upon which the defendants rely relevantly provides:
Transfer of proceedings
(2) Where -
(a) a proceeding (in this subsection referred to as the relevant proceeding) is pending in the Supreme Court (in this subsection referred to as the first court); and
(b) it appears to the first court that -
(ii) having regard to -
(A) ...
(C) the interests of justice -
it is more appropriate that the relevant proceeding be determined by that other Supreme Court; or
(iii) it is otherwise in the interests of justice that the relevant proceeding be determined by the Supreme Court of another State or of a Territory -
the first court shall transfer the relevant proceeding to that other Supreme Court.
24 It is not necessary to set out the principles in full. So far as relevant to this application, the principles as enunciated by His Honour (footnotes omitted) are as follows:
(a) The Act requires that the [first] court should exercise the power of transfer whenever "it appears" that it is in the interests of justice that it should be exercised.
(b) It is not necessary that it should appear that the first court is a "clearly inappropriate" forum. It is both necessary and sufficient that it appears that, in the interests of justice, the second court is more appropriate than the first court.
(c) The court is not concerned with the problem of a court, with a prima facie duty to exercise a jurisdiction that has been regularly invoked, asking whether it is justified in refusing to perform that duty. Rather, the court is required by statute to ensure that cases are heard in the forum dictated by the interests of justice.
(d) The interests of justice are not the same as the interests of one party, and there may be interests wider than those of either party to be considered. Even so the interests of the respective parties, which might in some respects be common (as for example cost and efficiency) and in other respects conflicting, arise for consideration.
(e) The power to exercise the jurisdiction is not a discretionary power but a mandatory obligation. No question of discretion arises.
(f) It is inapt to speak of an applicant for an order for transfer as bearing a burden of persuasion analogous to an onus of proof. Rather the jurisdiction must be exercised when "it appears" to the court that "it is in the interests of justice" that the proceeding be determined in the Supreme Court of another State or Territory rather than the court of where the proceeding has been issued. Unless it so appears, the court does not have power under the Act to transfer the proceedings. To that extent it may be said that an applicant assumes some onus of persuasion.
(g) The court should adopt what has been described as a "nuts and bolts" management decision as to which court, in the pursuit of the interests of justice, is more appropriate to hear and determine the substantive dispute.
(h) The appropriate court is the natural forum as determined by connecting factors to that forum.
(i) Relevant connecting factors include matters of convenience and expense such as availability of witnesses, the places where the parties respectively reside or carry on business, and the law covering the relevant transaction.
(j) In many cases there will be a preponderance of connecting factors with one forum so that it can readily be identified as the most appropriate of natural forum. In other cases, there might be significant connecting factors with each of the two different forums. Some of the factors might cancel each other out.
25 In addition to the summons the defendants filed a notice pursuant to Order 13, Rule 13.06(1) of the Supreme Court (Miscellaneous Civil Proceedings) Rules 2018 (Vic) of their intention to invoke jurisdiction under a cross-vesting law. The notice identified the following grounds in support of the application for cross-vesting:
(a) the remedies pursued by the first and second plaintiff concerned rights which the first plaintiff does not have standing to pursue;
(b) there is no connection between the forum that these proceedings have been commenced and the breaches of directors' duties which the second plaintiff purported to enforce;
(c) there is no connection between the rights of the second plaintiff and the State of Victoria;
(d) the second plaintiff was incorporated and conducts business in the State of Western Australia;
(e) the jurisdiction in which the breaches of directors' duties and associated wrongs are alleged to have been committed is the State of Western Australia;
(f) the potential witnesses to the second plaintiff's claim are situated in the State of Western Australia; and
(g) the evidence and witnesses relevant to the fourth defendant's counterclaim are based in the State of Western Australia.
26 In support of cross-vesting, the defendants submit that it is unclear what basis or standing SEA has to pursue the defendants in respect of wrongs said to have been done to SEWA. So far as the endorsement of claim is concerned, I agree with the defendants. No cause of action by SEA against the defendants or any of them is alleged.
27 In reply submissions, the plaintiffs referred to a potential claim by SEA against ESE for misleading and deceptive conduct, relying on s 18 of the Australian Consumer Law for passing off ESE as SEA on the ESE website. It is not clear what alleged misconduct might have occurred. However, it may be inferred from the affidavit evidence that if any persons were misled or entered into transactions with ESE as a result of the alleged misleading or deceptive conduct by dealing with ESE, or purchasing product from it, it is likely that any such persons, at the very least, included persons in the State of Western Australia.
28 Apart from this recently foreshadowed claim, SEA has no claim against ESE. It is evident from the general endorsement that, to the extent there are claims of substance against the defendants, those claims are the claims that might be brought by SEWA, if derivative leave is granted in its favour to bring such claims.
29 In South Johnstone Mill Ltd v Dennis,[3] Middleton J held that on a proper construction of Part 2F.1A of the Corporations Act, it is not a precondition to the jurisdiction of the Court that leave be sought prior to commencing proceedings:
To permit an application to be made ex parte shows that parliament envisaged that in certain circumstances a party may need to approach the court urgently and without notice to interested persons, and permits the court to hear that application accordingly. By so permitting such an application to be made without notice and ex parte does not mean that it is a precondition of the jurisdiction of the court that leave be brought prior to the institution of proceedings in all circumstances.[4]
30 It follows from this passage, with which I agree, that the fact there has been no grant of derivative leave in favour of Mr Liang, a director and minority shareholder in SEWA, does not act as a barrier to the subsequent grant of leave and the continuation of the proceeding in the name of SEWA conducted by Mr Liang on its behalf. However, if derivative leave is granted it concerns and relates to complaints as to conduct that took place in Western Australia.
31 On the ex parte hearing of the application for the freezing order on 26 June 2020, I invited senior counsel for the plaintiffs to address the Court as to the basis upon which the plaintiffs submitted that the Supreme Court of Victoria has jurisdiction. I did so because, on the face of the material at that time before the Court, there was very little, if any, connection between the State of Victoria, and the subject matter of the proceeding or the defendants.
32 At that time senior counsel submitted that a causal nexus existed with the State of Victoria because SEA had procured the sale of solar panels and had set up the whole business for the corporate entities in Victoria. He otherwise conceded there was no alleged misconduct which occurred in Victoria and that, at that time, noting that the position may since have changed, SEWA did not conduct business operations in the State of Victoria.
33 In his affidavit in opposition to cross-vesting, Mr Wang gives evidence that he has been in Australia for extended periods of time between February 2018 and January 2020 for the purposes of developing the businesses of the plaintiff companies. It is his evidence that most of his time in Australia has been spent in Melbourne. He gives evidence that all of the PV products supplied by SEA are stored at that company's premises at Keysborough in Victoria before being distributed to customers. As to PV products supplied by SEA to SEWA, sometimes the products are said to arrive directly in Western Australia from China, whereas on other occasions they are delivered from China to Victoria and then from Victoria to Western Australia.
34 Apart from this evidence, Mr Wang refers to the attendance in Melbourne by Mr Yu, Mr Li and Mr Zhao, at an energy conference on 23 and 24 October 2019. That appears to be the extent of the involvement by those gentlemen, or any of them, with relevant business transactions taking place in the State of Victoria.
35 As submitted on behalf of the defendants, SEWA is based and located in Western Australia. It is the case for the defendants that ESE, a company incorporated by Mr Zhao in which Mr Yu holds a management position, purchased solar panels from SEWA to sell to third party consumers. Those dealings occurred solely in the State of Western Australia.
36 The evidence discloses that Mr Yu and Mr Zhao reside permanently in the State of Western Australia. Mr Li, is presently resident in the Peoples' Republic of China, as is Mr Wang, who is the individual behind the claim by the plaintiffs. It follows that, so far as locality of the respective parties is concerned, the balance lies only in favour of the State of Western Australia.
37 So far as the identity of prospective witnesses is concerned, to the extent the plaintiffs might wish to call persons to give evidence, I accept the submission on behalf of the defendants that those witnesses would be expected to be Mr Liang Wang and/or Mr Kevin Wang. Mr Kevin Wang, as the evidence reveals, is currently employed by SEWA in the State of Western Australia. The witnesses for the defendants will be persons resident in Western Australia.
38 In opposition to cross-vesting, the plaintiffs submit that the nature of the dispute is a commercial one, it does not involve personal injuries where there may be difficulties in lay or medical witnesses travelling to give evidence. Whilst that may be so, the fact is that the witnesses in question and the parties have little, if any, connection to the State of Victoria. To the extent the relevant persons are present in Australia, they are persons residing in Western Australia. So far as the expected witnesses are residents in China, they will either need to give evidence by travelling to Australia or give evidence by video link.
39 The submissions on behalf of the plaintiffs refer to the previous hearings in the Supreme Court of Victoria being conducted by audio-visual means. They submit there is every reason to believe that any future trial and interlocutory hearings could be conducted in the same way without any real inconvenience. Alternatively, it is said if the Court saw fit and COVID-19 restrictions permitted, a trial could be conducted physically in Western Australia, presumably by a judge of the Supreme Court of Victoria.
40 As soon as that submission is understood, it drives home the very clear position in this case. If there is to be a physical hearing involving witnesses in person, which is preferable if that is possible, and it is certainly not presently possible in Victoria, then not simply the trial but also the management and conduct of proceeding should take place in Western Australia.
41 I do not accept the submission that by the proceeding remaining in Victoria there will be no prejudice to the defendants. Even if ESE's business is not limited to Western Australia, as is submitted on behalf of the plaintiffs in opposition, it is clear that the key witnesses themselves reside in Western Australia. Current COVID-19 related restrictions mean that those persons would not be permitted to travel to the State of Victoria and it is unclear when that position may change.
42 Just as the parties, through their Western Australian legal representatives have been able to conduct the proceeding in Victoria so far, the reverse will be the position upon the proceeding being cross-vested.
43 Whilst it is not necessary in order to cross-vest a proceeding that the first court is a 'clearly inappropriate forum', in the present case, for the reasons set out above, that is the position. The proceeding has no substantive connection the Victoria. To recap:
(a) The only claim articulated in the endorsement of claim is one by SEWA which, leaving derivative leave issues to one side, is solely concerned with events and conduct in Western Australia. To the extent SEA may have a claim, it is likely also to at least involve, if not be confined to events in Western Australia.
(b) SEWA carried on its business in Western Australia. It continues to do so. The subject matter of complaint by SEWA solely concerns evets occurring in Western Australia.
(c) The individual named defendants, Mr Yu, and Mr Zhao reside in Western Australia, as does one of the expected witnesses, Mr Kevin Wang.
(d) The proceeding has no connection to Victoria, other than the fact it was initiated in the Supreme Court of Victoria.
44 I will order that the proceeding be cross-vested to the Supreme Court of Western Australia. That is clearly what the interests of justice demand. That is where the proceeding should have been issued in the first place.
45 I will order that the first and second plaintiffs jointly and severally pay the defendants' costs of this application on a standard basis.
SAKURA ENERGY AUSTRALIA PTY LTD (ACN 630 967 930)
[1] [2011] VSC 291, [14].
[2] [2017] VSC 606, [14].
Sakura Energy Australia Pty Ltd
Yu [2020] VSC 517
(2007) 163 FCR 343