Hanna v Australian Securities and Investments Commission

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 360 of 2011

AND: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

JUDGE: MCKERRACHER J DATE: 20 SEPTEMBER 2011 PLACE: PERTH

INTRODUCTION 1 The primary application in this proceeding is for reinstatement of Strongwall International Limited (Strongwall) and its major shareholder, Remex Pty Ltd (Remex). Each has been deregistered. 2 These short reasons go only to the question of whether or not the plaintiff and the interveners, (the applicants in WAD 246 of 2011) (the Sebastian parties), should be required to mediate the dispute in each of those related matters at this time or later. For reasons that will become apparent, the plaintiff argues that the issue of the re-registration of the companies should be determined prior to any mediation with the Sebastian parties.

BACKGROUND 3 This preliminary question must be understood in the context of reasons given recently in Sebastian v Strongwall International Limited (Deregistered) [2011] FCA 1045 (WAD 246 of 2011) (the Sebastian proceeding). The Sebastian proceeding was commenced on 27 June 2011. In that proceeding the applicants contend that the current plaintiff, (Mr Hanna), has engaged in misleading and deceptive conduct and oppression. This proceeding (the Hanna reinstatement proceeding) was commenced on 2 September 2011. There is no opposition to the Sebastian parties being heard in the Hanna reinstatement proceeding. There was no opposition from the defendant, (ASIC), to the reinstatement of Strongwall and Remex.

THE ARGUMENTS 4 The Sebastian parties contend that the proceedings should be tried together as soon as possible before the same judge with the evidence in each being admitted in the other. However, the Sebastian parties also contend that both matters should be referred to mediation, at this time, to be conducted before a Registrar of the Court without delay. 5 It is common ground that the issues in this proceeding are very much related to the issues in the Sebastian proceeding. This proceeding was initiated separately to comply with reg 2.2(1) of the Federal Court (Corporations) Rules 2000 which requires a person making an application under the Corporations Act 2001 (Cth) to reinstate the registration of a company to do so by an originating process. 6 The true substance of the debate between the parties, however, as I see it, relates not to the question of reinstatement itself. Rather, it relates to how or whether the reinstatement can be effected in the short term in a way in which the parties' respective interests and positions can be preserved. Alternatively, whether there is another mutually satisfactory dispute resolution mechanism altogether. The reason expressed by Mr Hanna for reinstatement of the companies is to give effect to an agreement with Mr Shehade (as defined in the Sebastian proceeding) for the transfer of '51% of 81%' of the shares in Strongwall to Viva Natural Stone Pty Ltd (Viva) (a company represented by Mr Shehade) (the Shehade agreement). That agreement would then permit Viva and Strongwall to take steps (amongst others) to enforce compliance with a licence agreement in Singapore which will, if successful, enable Strongwall to recover approximately $575,000 due under the Singapore licence agreement. 7 However, in the Sebastian proceeding, the applicants seek a 'readjustment' of the shareholding in Strongwall so that the applicants will have the entirety of the shares, i.e. a 100% control of Strongwall. 8 If the Hanna reinstatement proceeding were to be heard first and were to succeed, then control of Strongwall would pass to Viva such that the Sebastian parties would be precluded from contending that they are entitled to 100% control of Strongwall. It is not possible at this stage to predict the outcome of that proceeding. 9 Mr Hanna opposes mediation at this stage because any negotiated outcome of the two actions would reasonably involve the issue of the ownership and control of Strongwall and neither Mr Shehade nor Viva is a party to either proceeding and could not be permitted or required, it is submitted, to attend any mediation. Mr Hanna says he will not agree to any negotiated outcome that is inconsistent with the Shehade agreement because he has given sworn evidence of the existence of the agreement; and any negotiated agreement which is inconsistent with that agreement would either be non-binding and/or give Viva or Mr Shehade grounds to sue Mr Hanna for breach of the Shehade agreement. It is also said that any delays in the reinstatement and performance of that agreement would cause further financial hardship to Mr Hanna. He is dependent upon receipt of a pension pending the reinstatement of Strongwall and is deprived of the opportunity to obtained moneys owed to him by Strongwall. 10 It is also contended for Mr Hanna that there is a fundamental difficulty that the breach of Strongwall's licence agreement in Singapore appears to have been caused by 'associates of the Sebastian interests' themselves. Although the extent of that involvement, it is said, cannot be determined until proceedings are commenced in Singapore against Buildgreen (ASIA) Pte Ltd (Buildgreen) in relation to the breach of the patents and licence agreement. Until that question is resolved by credible evidence, Mr Hanna argues that good faith negotiations cannot take place when there is a reasonable inference that the opposition by the Sebastian parties to reinstate Strongwall is motivated by a desire to prevent Mr Hanna from taking action in Singapore as the Sebastian parties appear to have an interest in Buildgreen.

CONSIDERATION 11 At the moment Mr Hanna does not have a great deal to lose. Unless and until there is reinstatement, the Shehade agreement has little value. Without the agreement, the benefits it might confer upon him appear to be very limited. The possibility of reinstatement and the possible benefit to Mr Hanna by reason of the Shehade agreement should not, however, be attained in a way that prejudices the rights of the other former shareholders and creditors in Strongwall, particularly as advanced in the Sebastian proceeding. With that in mind, although Mr Shehade is not a party to either proceeding, securing his cooperation would not necessarily present an insuperable obstacle if he is keen to achieve the objectives to which he has deposed. Mr Shehade was willing to give a reasonably detailed affidavit in the Sebastian proceeding. 12 On the second substantive point raised for Mr Hanna, (see [10] above), as to whether the Sebastian parties have or have not been instrumental in the alleged Singaporean default, that is a typical issue for exploration on a without prejudice basis in mediation. 13 Against these considerations, I would adopt, with respect, aspects of the observations of Rares J in a paper titled 'Alternative Dispute Resolution in the Federal Court of Australia' published as part of the Law Council's Federal Litigation Section Newsletter (Chapter III July 2009) where his Honour said: The importance of consent It has been the experience of the Court that parties' lack of consent to attend mediation is not an indication of the mediation's prospects of success. Many mediations successfully resolve disputes where the parties objected to the initial order referring proceedings in the Court to mediation. Bona fide participation once the parties are engaged in the mediation process is most important. Interestingly, the registrars' experience of the Court ordered mediations is that the parties nearly always become sincerely involved despite any initial opposition to the mediation. In general the attitude of the participants is that if parties and their representatives have to be there, they might as well use the opportunity. On occasion a party will not want to be seen as suggesting mediation lest it be interpreted as a sign of weakness. Judicial coaxing or orders for mediation can allow those parties a way of joining the process without loss of face. If a party did participate in bad faith, a skilled mediator is likely to recognise this. Where he or she considered that such an approach by a recalcitrant party could not be remedied, the mediation would be terminated. Is it the right time? The primary and constitutional duty of the Court is to hear and determine matters. That is the essential role of the judicial branch of government - the quelling of controversies. Mediation, and other ADR resources are an aid to the Court, and the parties, in appropriate circumstances to assist in the resolution of disputes. While the Court, in general, would hope that parties would want to reach a consensual resolution, every society maintains an authority to impose a solution on disputing parties. The Court must be available to all persons equally. Access to justice and equality before the law are fundamental expectations of the community. While s 53A of the Federal Court of Australia Act enables the Court to order non consensual mediation, that power is to facilitate, not impede, the Court discharging its fundamental task of hearing and determining their matter. 14 Although this is an early stage of this proceeding, it appears to me that there is merit in ordering the parties to attend an early mediation. There is no shortage of information, evidence and argument. There has been a substantial amount of affidavit evidence filed together with the reasons in the Sebastian proceeding. 15 There is a sound statistical and intuitive basis for confidence in the mediation skills of the professionally trained and practically experienced registrars in the Australian court system generally. Assuming a well-intentioned approach from legal advisors, as one would expect, the benefits of mediation, even if not resulting in a total settlement, should outweigh the cost and possible delay in the exercise. 16 In this regard, while it may be unlikely that a mediation between the parties would result in a global resolution of the dispute, it is certainly possible that the parties could at least reach a determination on the way forward which would preserve the parties' respective positions. 17 I accept that it may be necessary to determine both sets of proceedings if they cannot be resolved but in the meantime, there is, in my view, a reasonable likelihood that there would be a means of achieving a reinstatement on terms and conditions which would protect the status quo until early resolution of a joint proceeding. This may mean that the agreements with Viva discussed in the Sebastian proceeding is put on hold for a limited period but it would appear to be in the commercial interests of all concerned to attempt to reach a compromise as to a way forward.

CONCLUSION 18 It follows, therefore, that the only orders I propose to make at this stage are conventional mediation orders in the following terms: 1. The proceedings be referred to a Registrar for a mediation conference. 2. The mediation be conducted within one month, the plaintiff to submit a written request to the District Registrar for that purpose. 3. The presiding Registrar is empowered to conduct the mediation conference and to make such directions as may be necessary or appropriate for the conduct of the mediation. 4. The mediation is to be conducted on a confidential basis and, except with the express consent of all participating parties, or under order of the Court, any written or oral statements made (including by the mediator) or any documents provided in the mediation process, (particularly anything said or conveyed during the mediation by way of admission), shall not be communicated or otherwise disclosed by a participant in the mediation to a person who was not present. 5. If a party to the proceedings is not personally present at the mediation conference, a representative of that party may provide a report of the mediation to the party, but the terms of the confidentiality order in the preceding paragraph shall apply equally to that party who shall sign an acknowledgement to that effect which shall be held by a disclosing party and provided to the Court if requested. 6. If an attending party is not legally represented at the mediation conference, that party may provide a report to that party's lawyer for the purposes of obtaining legal advice provided that the terms of this confidentiality order shall be accepted as being applicable equally to that lawyer. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.