Is the High Court of New Zealand the "more appropriate court", within the meaning of Trans-Tasman Proceedings Act, s 19?
48It is not disputed that, as a civil proceeding involving parties from New Zealand (namely FRL and Mr Kember), the proceedings are subject to the (CTH) Trans-Tasman Proceedings Act 2010. The issue is whether the proceedings should be stayed pursuant to s 19 on the ground that the High Court of New Zealand is the more appropriate court to determine the matter. I approach this question on the assumption that my conclusion that this Court cannot grant leave to sue in the name of the company, either under Part 2F.1A or in the inherent or supervisory jurisdiction, is incorrect. Assuming, contrary to my conclusions, that this court could grant such leave, is the New Zealand court the more appropriate court to determine such an application?
49Section 17(1) provides:
(1) A defendant in a civil proceeding in an Australian court may apply to the court for an order staying the proceeding on the grounds that a New Zealand court is the more appropriate court to determine the matters in issue.
50Section 17(2) limits the time for bringing that application. Section 19 relevantly provides:
19 Order of stay of proceeding
(1) On application under section 17, the Australian court may, by order, stay the proceeding if it is satisfied that a New Zealand court:
(a) has jurisdiction to determine the matters in issue between the parties to the proceeding; and
(b) is the more appropriate court to determine those matters.
(2) In determining whether a New Zealand court is the more appropriate court to determine those matters, the Australian court must take into account the following matters:
(a) the places of residence of the parties or, if a party is not an individual, its principal place of business;
(b) the places of residence of the witnesses likely to be called in the proceeding;
(c) the place where the subject matter of the proceeding is situated;
(d) any agreement between the parties about the court or place in which those matters should be determined or the proceeding should be commenced (other than an exclusive choice of court agreement to which subsection 20(1) applies);
(e) the law that it would be most appropriate to apply in the proceeding;
(f) whether a related or similar proceeding has been commenced against the defendant or another person in a court in New Zealand;
(g) the financial circumstances of the parties, so far as the Australian court is aware of them;
(h) any matter that is prescribed by the regulations;
(i) any other matter that the Australian court considers relevant;
and must not take into account the fact that the proceeding was commenced in Australia.
(3) An order under subsection (1) may be made subject to any conditions the Australian court considers are appropriate in order to facilitate, without delay or undue expense, the determination of the matters in issue between the parties to the proceeding.
51Thus on an application under s 17, the Australian court may stay the proceeding if satisfied that a New Zealand court (a) has jurisdiction to determine the matters in issue between the parties to the proceeding, and (b) is the more appropriate court to determine those matters, having regard to the factors listed in s 19(2), which is not exhaustive, provided that the Australian court may not take into account the fact that the proceeding was commenced in Australia. The test provision is therefore a discretionary one, which permits but does not require the court to stay the proceedings if satisfied that the New Zealand court has jurisdiction and is the "more appropriate court" (unless there is an exclusive choice of court agreement, in which case s 20 mandates a stay of the proceedings). But notwithstanding that the power is discretionary, it would be an exceptional case, if there is one at all, in which being satisfied that the New Zealand court had jurisdiction and was the more appropriate one, the Court would not stay the Australian proceedings.
52As to the first limb, there is no doubt that the New Zealand court has jurisdiction. (NZ) Companies Act 1993, s 165, enables it to grant leave for a statutory derivative action, and as the court of the administration it would have jurisdiction to grant permission to sue in the name of the company in the inherent or supervisory jurisdiction. Indeed, its jurisdiction is much more plainly established than that of this Court.
53As to the second limb, the "more appropriate forum" test mirrors the test provided in respect of domestic proceedings by (CTH) Service and Execution of Process Act 1992, s 20 and Jurisdiction of Courts (Cross-Vesting) Act 1987, s 5, in place of the "clearly inappropriate forum" that applies at common law. The test directs attention to the more appropriate, not the more convenient, court. While convenience is undoubtedly an importance consideration, it is not determinative. Notions of the "natural forum" can inform what is the "more appropriate forum", as I observed, in the context of the Cross-Vesting Act, in BioAg Pty Ltd v Hickey [2007] NSWSC 296 (at [7]):
[7] In identifying the "more appropriate forum", relevant considerations including the cost and efficiency of proceedings in the respective jurisdictions, and the connecting factors referred to by Lord Goff in Spiliada Maritime Corporation v Cansulex Ltd [1987] AC 460, 478 - including matters of convenience and expense such as availability of witnesses, the places where the parties respectively reside or carry on business, and the law governing the relevant transaction [BHP v Schultz, 422 [18]]. Sometimes, consideration of relevant connecting factors will identify a "natural forum". Ordinarily, the residence of the defendant is more significant than that of the plaintiff to establish jurisdiction and this may count in identifying the natural forum [BHP v Schultz, 423 [19]; British American Tobacco Australia Ltd v Gordon & Anor [2007] NSWSC 230, [44]].
54In James Hardie & Coy Pty Ltd v Barry (2000) 50 NSWLR 357, Spigelman CJ said, also in the context of the Cross-Vesting Act (at 361 [7]):
To determine which court is, in the interests of justice, the appropriate court, it is necessary to inquire, in the case of a tort, as to what is the place of the tort. Indeed, in the context of administering the co-operative national scheme in the Jurisdiction of Courts (Cross-Vesting) Act, where the place of the tort and the residence of the parties coincide, this will generally be determinative of the issue of "appropriate court", although other factors may need to be assessed in the process of determining where the interests of justice lie.
55It is convenient to address first the mandatory considerations referred to in s 19(2).
56The places of residence of the parties or, if a party is not an individual, its principal place of business. All the plaintiffs are resident variously in New South Wales, Victoria and Tasmania. Of the defendants, Ms Weston and Mr Mollison are resident in New South Wales, and Mr Goodacre in Victoria. Of the non-corporate defendants, only Mr Kember is not an Australian resident; he lives in New Zealand. The principal place of business of FRCN is in Australia. Although FRL's corporate headquarters were located in Sydney between April 2008 and at least mid-2013, they have now returned to Auckland. The seat of the administration is in Auckland, although one of the administrators is resident in New South Wales. Adveco's principal place of business appears to be in Sydney, as are those of Driftwood and Plaman.
57The places of residence of the witnesses likely to be called in the proceeding. So far as can be ascertained from the affidavits which it has been indicated would be read in the proceedings, the overwhelming majority of the witnesses reside in Australia, and all but one of them in New South Wales, the exception being in Victoria. Only Mr Kember and a lawyer reside in New Zealand, and it is doubtful that the lawyer would need to attend.
58The place where the subject matter of the proceeding is situated. The subject matter of these proceedings is a cause of action that FRL is said to have against its directors for alleged breaches of their statutory and general law duties. Where those breaches (if established) occurred is far from clear. The company was incorporated in New Zealand; the majority of its shareholders are in New Zealand; and its business is in New Zealand. Although its administrative functions were located in Sydney until about mid-2013, since then they have returned to Auckland. (The FRL Group 2013 Annual Report states that the administrative functions of FRL were moved back to New Zealand from Sydney in June 2013). The matters that found the second part of the plaintiffs' claim occurred in late 2013, after the administrative functions were moved back to New Zealand. One of the directors (Mr Kember) was resident in New Zealand. Where relevant meetings of the directors were held; where relevant agreements, arrangements or understandings were made; and where the relevant steps that culminated in FRL being put into voluntary administration were taken, is not pleaded or particularised. It is likely that some of the relevant conduct occurred in Australia, but also that some occurred in New Zealand.
59Any agreement between the parties about the court or place in which those matters should be determined or the proceeding should be commenced (other than an exclusive choice of court agreement to which subsection 20(1) applies). Save that the general security agreement between FRL and FRCN (to which the plaintiffs and the directors are not party) contains a submission to the non-exclusive jurisdiction of New South Wales, there is no relevant choice of jurisdiction agreement.
60The law that it would be most appropriate to apply in the proceeding. Prevailing Australian authority is that the right of a shareholder to bring a derivative suit is procedural and thus governed by the law of the forum [Ebbage v Manthey [2001] QSC 4 (Helman J); Virgtel Limited v Zabusky (de Jersey CJ)]. However, in Konamaneni v Rolls Royce Industrial Power (India) Ltd [2002] 1 WLR 1269, Lawrence Collins J held that while such a right was procedural in the purely domestic law context, in the international context it should not be so regarded, and consequently, the applicable law was that of the place of incorporation. It might be regarded as likely that this Court would follow the Australian authorities, but they are not binding and the question must be regarded as open. Plainly enough, on an application under ss 236 and 237, Australian law would apply. If the application were made in New Zealand, Companies Act, s 165 would apply. It is not apparent that there is any material difference between the law of Australia and that of New Zealand. Accordingly, the law applicable on the application for leave is not a significant factor.
61As to the substantive proceedings, the plaintiffs point to indicia in various of the relevant transactional documents that the law of New South Wales would apply. In particular, the FRCN Convertible Note Deed provides that it is governed by the laws of New South Wales; the General Security Agreement recording FRCN's charge over FRL's assets is expressed to be governed by the law of New South Wales; the Driftwood note states that "The issue will be governed by and construed in accordance with the laws of Australia"; the Plaman mandate provides that it is governed by the laws of New South Wales (and Plaman waives any right to object to proceedings being brought in the courts of New South Wales for any reasons); and the Plaman SMDA Agreement states that it is governed by the law of New South Wales and that each party to the agreement waives any right to object to proceedings being brought in those courts for any reasons. None of those agreements, however, catch the present proceedings, because they are not proceedings between parties to those agreements under or concerning those agreements, but proceedings with respect to alleged breaches by the directors of their statutory and general law duties.
62The plaintiffs describe their cause of action as one arising from breaches by Australian-resident directors of FRL and alleged accessory third parties also resident in Australia, of duties imposed on directors of corporations by Corporations Act, ss 180, 181, 182 and 183, and by the general law. But the requisite territorial nexus is not established simply by reason that FRL is a registered foreign company, or had located its administrative functions in Australia. No doubt there would be a strong if not overwhelming case for the application of ss 180, 181, 182 and 183 to directors resident in Australia who discharged their functions in Australia, and perhaps also abroad, if the company's seat of management was in Australia. But one of the directors was not resident in Australia, and, as explained above, the extent to which the subject matter of the proceedings has the requisite territorial nexus with Australia, for each cause of action against each defendant, is uncertain. Accordingly, the extent to which Australian law would govern the substantive proceedings is not clear.
63Whether a related or similar proceeding has been commenced against the defendant or another person in a court in New Zealand. No related or similar proceeding has been commenced against the defendant or another person in a court in New Zealand.
64The financial circumstances of the parties, so far as the Australian court is aware of them. There is no relevant evidence of the financial circumstances of the parties, and in those circumstances this factor should be treated as neutral.
65Any other matter that the Australian court considers relevant. FRL is subject to an administration under the Companies Act, Part 15A, in respect of which the High Court of New Zealand is the court of the administration. Moreover, FRL is subject to a DoCA, which has been approved by its creditors in conformity with the law of New Zealand. The DoCA provides for a contribution of a "deed fund" of $4.8 million by Iris, to be applied first to discharge the FRCN debt, redeem the FRCN securities, and thus procure the retirement of the receiver, and the balance to be held by the deed administrators until Iris elects between proceeding by asset sale or share sale (cl 11.3, 11.5). If Iris does not elect to purchase FRL's assets, the transaction will proceed by way of a sale to Iris of all the shares in FRL, and the balance of the deed fund will be applied (1) as to $125,000 to establish a shareholder transfer trust, (2) as to $25,000 to establish a shareholder claim trust, (3) to costs of the administration, and (4) to establish a trust for the benefit of unsecured creditors. The shareholder claim trust, of which the deed administrators will be the initial trustees, will - after the sale of shares to Iris - continue to hold, for the benefit of the (former) shareholders, the "shareholder claim", which comprises all potential claims by FRL against its directors and FRCN, but excluding any claim against Iris or Plaman. (If Iris elects to purchase the assets, the shareholder claim will be excluded from the sale and retained by FRL, and the balance of the deed fund after costs of administration distributed to unsecured creditors.) Once the conditions of the DoCA are satisfied and Iris pays $4.8m to constitute the deed fund, any claim FRL has against Plaman or Iris is released and extinguished. The DoCA therefore has the effect that (a) Iris will acquire either the assets of FRL (excluding the Shareholder Claim) or all the shares in FRL, for $4.8 million; (b) FRCN will be repaid in full, its security discharged and its receiver retired; (c) FRL's potential claims against the directors and against FRCN will be preserved, for the benefit of FRL's existing shareholders; and (d) any claim FRL may have against Plaman will be released.
66Thus the DoCA preserves for the benefit of shareholders the very claims that the plaintiffs seek leave to bring, and (if the transaction proceeds by share sale) vests them in a trust of which the deed administrators are the initial trustees, with power to investigate the claims, obtain advice of counsel, and - subject to such advice and shareholder approval - to commence, prosecute and compromise the claim. The plaintiffs' application would take this responsibility out of the hands of the trustees appointed pursuant to the DoCA. It may be that there are good grounds for doing so - particularly if the matter does not proceed by share sale, in which event the shareholder claim would remain effectively under the control of the directors - but this points to a very close relationship between supervision of the DoCA and the plaintiffs' application.
67The DoCA provides for the repayment of FRCN, but preserves the right to claim against it and to recover any amount found not properly to have been payable to it. It also provides that FRCN shall take no steps to enforce its security. This overlaps with the relief sought by the plaintiffs.
68The plaintiffs have foreshadowed, though the amended originating process does not yet refer to it, that they will seek to have the release of Plaman avoided; indeed, it would seem essential that they do so, as otherwise it would extinguish their claim against Plaman. Plaman is Iris' agent for the purposes of the DoCA, and Iris and Plaman required the release as a condition of their investment, in order to ensure that the funds they contributed would not be used to fund an action against them. By approving the DoCA and its amendment, the creditors apparently accepted that release as part of the price for securing Iris and Plaman's support. A proceeding to set aside the Plaman release would be inextricably interwoven with the DoCA, and avoidance of the release might well undermine the DoCA. Assuming jurisdiction - which seems doubtful, given that the High Court of New Zealand is the court with supervision of the DoCA - it is difficult to see how this court could consider such an application without considering the interests of all parties bound by the DoCA, and not just the litigants in these proceedings. Such consideration would much more appropriately be undertaken by the court with supervision of the DoCA.
69The plaintiffs say that, in response to the observations made by Black J and referred to above, they investigated the viability of applying in New Zealand to set aside the DoCA, and obtained advice from New Zealand lawyers that was not encouraging, and from Australian counsel who recommended against taking proceedings in New Zealand. This seems largely to have been based on the (unsurprising) view that, in the context of an application to set aside a DoCA, the court was unlikely to prefer the interests of a few shareholders to the practically unanimous wishes of the creditors. It was before the DoCA was amended to include the Plaman release. The advice related to a different potential application from that presently under consideration. Given the similarity of the legal regimes, it is not apparent why the plaintiffs' prospects in New Zealand would be inferior to those in New South Wales. But even if the plaintiffs' prospects of success in New South Wales were greater than in New Zealand, that would not inform selection of the more appropriate forum: the plaintiffs' choice is expressly made not relevant by the concluding words of s 19(2).
70The factors that inform a judgment as to whether the New Zealand court is the more appropriate one therefore do not by any means speak unanimously. On the one hand, the inconvenience to the plaintiffs of litigating these proceedings in New Zealand would undoubtedly considerably outweigh the inconvenience to the defendants (in fact, only one of them) of litigating them in New South Wales. In addition, the residence of all but one of the defendants in New South Wales is also a significant factor, as at common law their presence was the foundation of jurisdiction, though this is of reduced significance now, as the (NZ) Trans-Tasman Proceedings Act permits process of New Zealand courts to be served and enforced in Australia as in New Zealand. On the other hand, the extent to which the causes of action arise in Australia or New Zealand remains opaque; the probabilities are that they arise, in part at least, under the laws of both countries, but those pertaining to the second component of the plaintiffs' case occurred after the seat of administration returned to New Zealand.
71Ultimately, the proceedings pertain to the duties of directors of a New Zealand company, the majority of whose shareholders are in New Zealand, the business of which is in New Zealand, and which is in administration in New Zealand under the laws of New Zealand and under the supervision of the High Court of New Zealand, which plainly has jurisdiction (under Companies Act, s 165), to grant leave to bring a statutory derivative action (if, contrary to my view, such an action can be brought while a company is in administration), and also to grant leave in the inherent jurisdiction (Companies Act, s 239ADS, gives the Court a supervisory jurisdiction in terms practically identical to Corporations Act, s 447E(1)). The relief sought by the plaintiffs overlaps with and potentially affects or interferes with provisions of the DoCA.
72To my mind, while considerations of convenience of the parties favour New South Wales, the nature and subject matter of the claim, the status of the company, and, especially, the interrelationship of these proceedings with the DoCA, render the High Court of New Zealand the more appropriate court. Accordingly, if this Court had jurisdiction in respect of the plaintiffs' claims for leave to bring proceedings in the name of the company, they would be stayed pursuant Trans-Tasman Proceedings Act, s 19.