In the matter of Sunnya Pty Ltd [2023] NSWSC 1104

Supreme Court of NSW|2023-08-24|Before: Williams J, Mr J

endant) Yaqing He (Sixth Defendant) HLW Investments Pty Ltd (Seventh Defendant) Supermega Market Ltd (NZ) (Eighth Defendant) Megadairy Ltd (NZ) (Ninth Defendant) NZFDA Ltd (NZ) (Tenth Defendant) Representation: Counsel: Mr R Foreman SC with Mr G P Gee (First and Second Plaintiffs) Mr S Docker with Mr J Rodgers (First, Second, Fifth, Sixth, and Seventh Defendants)

Solicitors: Auyeung Hencent & Day Lawyers (First and Second Plaintiffs) Monaco Lawyers (First, Second, Fifth, Sixth, and Seventh Defendants) File Number(s): 2022/329426 Publication restriction: N/A

Introduction

Sunnya Pty Limited (Sunnya) operates a business specialising in the sale of formulated food products, including infant formula.
The two shareholders of Sunnya are Jatcorp Pty Ltd (Jatcorp) (as to 51 per cent) and All168 Pty Ltd (All168) (as to 49 per cent). The shareholders of All168 are Mr Yinghan He and Ms Yanxia Lu. Mr He and Ms Lu are married. Mr He is the sole director of All168.
Jatcorp purchased its 51 per cent shareholding in Sunnya from Mr He and Ms Lu in about November 2018. At that time, Mr He had been a director of Sunnya since about 2014 and was employed as its General Manager. Ms Lu had also been a director of Sunnya since about 2014 and was employed as its Chief Executive Officer. Mr He and Ms Lu continued in those roles until they resigned as directors of Sunnya on about 25 November 2022.
These proceedings have been commenced by Jatcorp (the second plaintiff), for and in the name of Sunnya (the first plaintiff), alleging that Mr He (the first defendant) and Ms Lu (the second defendant) breached their statutory and fiduciary duties as directors and senior executives of Sunnya.
The plaintiffs allege that each of Mr He and Ms Lu breached their statutory and fiduciary duties to Sunnya by: 1. taking for their own benefit, or for the benefit of others, an opportunity that was available to Sunnya to become the promoter and distributor of "Guamis" branded infant formula products in November 2019; 2. entering into an agreement pursuant to which the "Guamis" trademark was registered in Australia and New Zealand in the name of Sunlife Healthfood Pty Ltd (Sunlife); 3. causing Sunnya to commence marketing and brand development for "Guamis" formula products that were manufactured for or sold to Sunnya by Supermega Market Ltd (NZ) (Supermega) and/or Megadairy Ltd (NZ) (Megadairy), and causing Sunnya and to produce and sell those products - predominantly in the People's Republic of China - from about September 2021, thereby increasing the value of the "Guamis" brand, in circumstances where Sunlife was the registered owner of the "Guamis" trademarks in Australia and New Zealand, and where Guangzhou Aoetea Biological Technology Pte Ltd (GABT) applied for registration of the "Guamis" trademarks in China in about May 2022; 4. directing, requesting, or encouraging Sunlife to cause or permit the New Zealand-registered "Guamis" trademark to be used in the manufacture and sale of "Guamis" branded products sold or distributed by GABT and/or Guangzhou Niurui Trading Co., Ltd (GNT) since about 25 November 2022; 5. directing, requesting, or encouraging GABT and/or GNT and/or Sunlife to sell and distribute "Guamis" branded products in China since about mid-January 2023 with similar packaging to the Sunnya "Guamis" branded products; and 6. requesting or encouraging Sunlife to transfer the New Zealand "Guamis" trademark to NZFDA Limited (NZ) (NZFDA) on or about 31 March 2023.
Sunlife (the fifth defendant) is registered in New South Wales. Ms Yaqing He (the sixth defendant) is the sole director and shareholder of Sunlife. Ms He is the daughter of Mr He and Ms Lu.
Supermega (the eighth defendant) and Megadairy (the ninth defendant) are companies registered in New Zealand. Mr Easter Wu is the sole director of both companies. Megairy is a manufacturer of food products, and Supermega is a sales agent for Megadairy.
GABT (the third defendant) was registered in China in 2007. Mr Yangchen Lu has been the Executive Director and General Manager of GABT since about March 2021. Mr Yangchen Lu is the brother of Ms Lu. The plaintiffs allege that GABT is controlled and majority owned by Mr He, and that it is the corporate alter ego of Mr He and/or Ms Lu. Both Mr He and Ms Lu deny this.
GNT (the fourth defendant) is also registered in China. The plaintiffs allege that GNT is the corporate alter ego of Mr He and/or Ms Lu. Mr He and Ms Lu deny this.
NZFDA (the tenth defendant) is a company registered in New Zealand. Mr Easter Wu is its sole director. Its sole shareholder is South Pole Limited, and Mr Wu is the sole shareholder of that company.
The plaintiffs claim that Sunnya is the owner of six "Neurio" trademarks registered in Australia, three "Neurio" trademarks registered in New Zealand, one "Neurio" trademark registered with the World Intellectual Property Organization (WIPO), and one "Neurio" trademark registered in Indonesia. The plaintiffs claim that those trademarks are used by Sunnya for the purpose of its business of selling "Neurio" branded infant formula products.
The plaintiffs claim that Sunnya also uses seven "Neurio" trademarks registered in China for the purpose of its business, and that Sunnya has been authorised by GABT - the registered holder of those trademarks - to "exclusively have the permanent right to use the Chinese Neurio Trademarks globally".
Mr He and Ms Lu contend that GABT is the owner of the Australian, New Zealand, WIPO, and Indonesian-registered "Neurio" trademarks, and that Sunnya is the registered holder of those trademarks as agent for, and on behalf of, GABT pursuant to agreements entered into between Sunnya and GABT in 2014 and 2020. They contend that, on 21 October 2022, GABT gave notice to Sunnya under those agreements that Sunnya was required to cease using those Neurio trademarks.
Mr He and Ms Lu also contend that GABT conferred only limited authority on Sunnya to use GABT's Chinese "Neurio" trademarks, and that GABT withdrew that authority on 21 October 2022.
The plaintiffs allege that each of Mr He and Ms Lu breached their statutory and fiduciary duties to Sunnya by: 1. executing deeds on behalf of Sunnya during the period from late October 2022 to early November 2022 purporting to assign the Australian, New Zealand, and Indonesian-registered "Neurio" trademarks to GABT for no consideration, without being authorised to do so by the board of directors of Sunnya, and subsequently executing transfer applications to give effect to those purported assignments; 2. directing, requesting, encouraging, or endorsing GABT's application made on about 8 November 2022 to the European Union Intellectual Property Office for registration of a "Neurio" trademark; 3. directing, requesting, encouraging, or endorsing Sunlife to apply for new trademarks in relation to the "NRIO" brand in Australia and New Zealand on 25 November 2022; and 4. directing or requesting Sunlife to transfer the New Zealand "NRIO" trademark to NZFDA on about 31 March 2023.
The plaintiffs allege that Mr He and Ms Lu committed numerous other breaches of their statutory and fiduciary duties to Sunnya, including by: 1. causing Sunnya to enter into contracts during the period from January to June 2022 to sell products to GNT at a price that was significantly less than the market value of those products; and 2. causing Sunnya to pay allegedly fraudulent invoices issued by GNT, GABT, and HLW Investments Pty Ltd (HLW).
HLW (the seventh defendant) is a company registered in New South Wales. Ms Lu and Mr He are the directors of HLW, and Ms Lu is its sole shareholder.
The plaintiffs allege that GABT, GNT, Ms He, Sunlife, Supermega, Megadairy, HLW, and NZFDA were involved within the meaning of s 79 of the Corporations Act 2001 (Cth) in the alleged breaches of duty by Mr He and Ms Lu, and that they knowingly assisted Mr He and Ms Lu in the alleged breaches of their fiduciary duties.
The plaintiffs also allege that GABT, GNT, Sunlife, HLW, and NZFDA knowingly received money or property that were the proceeds of Mr He's and Ms Lu's alleged breaches of fiduciary duties, including: 1. in the case of GNT: 1. the benefit of the business opportunity of selling and exporting "Guamis" branded products; and 2. the payment of the allegedly fraudulent invoices; 1. in the case of Sunlife: 1. the benefit of the Australian and New Zealand-registered "Guamis" trademarks and the increased value of the Guamis brands as a result of Sunnya's brand development, marketing and sales activities; and 2. the Australian and New Zealand-registered "NRIO" trademarks; 1. in the case of GABT: 1. the benefit of "Guamis" branded products and the increased value of the "Guamis" brand as a result of Sunnya's brand development, marketing and sales activities; 2. the benefit of the Australian-registered "Neurio" trademarks; and 3. the payment of the allegedly fraudulent invoices; 1. in the case of HLW, the payment of the allegedly fraudulent invoices; and 2. in the case of NZFDA: 1. the New Zealand-registered "Guamis" trademark; and 2. the New Zealand-registered "NRIO" trademark.
The plaintiffs seek declaratory relief, compensation under s 1317H of the Corporations Act, equitable compensation, an account of profits, and injunctive relief, including: 1. A declaration that Sunlife holds the Australian-registered "Guamis" trademark on constructive trust for Sunnya, and an order that it transfer the registration of that trademark to Sunnya; 2. a declaration that NZFDA holds the New Zealand-registered "Guamis" trademark on constructive trust for Sunnya, and an order that it transfer the registration of that trademark to Sunnya; 3. a declaration that GABT holds the Chinese-registered "Guamis" trademark on constructive trust or resulting trust for Sunnya, and an order that it transfer the registration of that trademark to Sunnya; 4. orders restraining Mr He, Ms Lu, GABT, GNT, Sunlife, Ms He, Supermega, Megadairy, and NZFDA from taking any steps to market, manufacture, sell, distribute or export any "Guamis" or "Neurio" products to or for any person other than Sunnya; 5. orders restraining Mr He and Ms Lu from taking steps, or further steps, to transfer the ownership of the Australian, New Zealand, and Indonesian-registered "Neurio" trademarks away from Sunnya; 6. a declaration that GABT holds the Australian-registered "Neurio" trademarks on trust for the benefit of Sunnya, orders restraining GABT from using or exploiting - and from preventing GABT from using or exploiting - those trademarks, and an order that GABT assign the registration of those trademarks to Sunnya; 7. declarations that GABT holds the New Zealand and Indonesian-registered "Neurio" trademarks on trust for the benefit of Sunnya; and 8. orders restraining Mr He, Ms Lu, GABT, GNT, Sunlife, Ms He, Supermega, Megadairy, and NZFDA from taking any steps to market, manufacture, sell, distribute, or export any "NRIO" branded products to or for any person.
The relief sought by the plaintiffs also includes in prayers 36 and 37 of the Second Further Amended Statement of Claim a declaration and order in the following terms against GABT: "36 A declaration that [GABT] has authorised [Sunnya] to exclusively have the permanent right to use the Chinese registered trademarks 25792637, 37827508, 37806926, 44899346, 34751584, 34752986, 9433654 (relating to Neurio) globally. 37 Further, or in the alternative, an order that [GABT] transfer the Chinese registered trademarks 25792637, 37827508, 37806926, 44899346, 34751584, 34752986, 9433654 (relating to Neurio) to [Sunnya]."
The sole basis for those claims for relief is pleaded in paragraphs 61 to 63 of the Second Further Amended Statement of Claim: "61 GABT has authorised Sunnya to exclusively have the permanent right to use the Chinese Neurio Trademarks globally. Particulars Letter of Authorisation dated 1 January 2021. 62 GABT has certified that: a. GABT is the owner of the trademark '纽瑞优 (Niu Rui You); b. Sunnya is the Australian owner of the trademark Neurio; c. GABT and Sunnya are in a 'cooperation relationship'; and d. GABT was taking steps to transfer the trademark in China to Sunnya. Particulars 'Letter of Statement' dated 17 June 2019, signed by Yancheng Lu on behalf of GABT and Mr He on behalf of Sunnya. 63 The Chinese Neurio Trademarks are used by Sunnya to carry out Sunnya's business of selling Neurio branded products."
These proceedings - which I will refer to as the Sunnya proceedings - are listed for final hearing commencing on 28 September 2023, together with related proceedings 2022/333557 commenced by All168, Mr He and Ms Lu - which I will refer to as the All168 proceedings. The plaintiffs in the All168 proceedings challenge the validity of a general meeting of Sunnya held on 31 October 2022 and resolutions passed at that meeting appointing directors nominated by Jatcorp. The plaintiffs also claim that Sunnya's affairs are being conducted in a manner that is contrary to the interests of its members as a whole, and oppressive to, unfairly prejudicial to, and unfairly discriminatory against, All168 within the meaning of s 232 of the Corporations Act.
Jatcorp seeks leave under s 237 of the Corporations Act to bring the Sunnya proceedings on behalf of and in the name of Sunnya. On 3 March 2023, Black J granted leave on an interim basis at the same time as granting a range of interlocutory relief sought against the defendants, including freezing orders against Mr He and Ms Lu. [1] Jatcorp now seeks: 1. a grant of leave under s 237 of the Corporations Act on a final basis nunc pro tunc to bring the Sunnya proceedings on behalf of and in the name of Sunnya; 2. an order under s 242 of the Corporations Act that Sunnya pay the plaintiffs' reasonable costs of bringing the Sunnya proceedings on behalf of Sunnya against the defendants; and 3. a grant of leave under r 11.8AA of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) to proceed against GNT in the Sunnya proceedings.
The foregoing description of the proceedings does not capture all of the claims in the Sunnya proceedings and the All168 proceedings, and does not address the defences that have been pleaded. However, that limited description is sufficient for the purpose of determining the applications presently before the Court.
Mr He, Ms Lu, Sunlife, Ms He, HLW, and All168 (the He Parties) made submissions in relation to the applications under ss 237 and 242 of the Corporations Act. Jatcorp accepts that Mr He and Ms Lu (as former directors of Sunnya) and All168 (as a 49 per cent shareholder in Sunnya) have standing to be heard in relation to its application for leave under s 237. Jatcorp does not accept that the other He Parties (being Sunlife, Ms He, and HLW) have standing to be heard. In reality, nothing turns on this, as the same submissions have been made on behalf of all of the He Parties in relation to Jatcorp's application under s 237.
GABT has appeared and filed a defence and cross-claim in the Sunnya proceedings. However, there has been no solicitor on the record for GABT since 24 April 2023, and GABT is not presently taking an active part in the Sunnya proceedings. GABT did not seek to be heard in relation to any of the three applications presently before the Court. It is doubtful that it would have had standing to be heard in relation to any of the applications in any event.
GNT has not filed a notice of appearance or defence in the Sunnya proceedings. That circumstance has given rise to Jatcorp's application under UCPR r 11.8AA.
Supermega, Megadairy, and NZFDA are defending the Sunnya proceedings, and did not seek to be heard in relation to any of the three applications presently before the Court.

Section 237 application

Section 237 of the Corporations Act relevantly provides: (1) A person referred to in paragraph 236(1)(a) may apply to the Court for leave to bring, or to intervene in, proceedings. (2) The Court must grant the application if it is satisfied that: (a) it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and (b) the applicant is acting in good faith; and (c) it is in the best interests of the company that the applicant be granted leave; and (d) if the applicant is applying for leave to bring proceedings - there is a serious question to be tried; and (e) either: (i) at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or (ii) it is appropriate to grant leave even though subparagraph (i) is not satisfied.
As a shareholder of Sunnya, Jatcorp is "a person referred to in paragraph 236(1)(a)" of the Corporations Act with standing to apply for leave under s 237.
The He Parties accept that the Court should be satisfied of the matters in sub-ss 237(2)(a), (b), (d), and (e). In my opinion, those concessions were properly made, subject to one qualification in relation to sub-s 237(2)(d) that is explained below.
The conduct of the Sunnya proceedings and the All168 proceedings to date, demonstrates the unlikelihood of Sunnya bringing the proceedings itself if leave is refused under s 237.
The Sunnya proceedings seek the recovery of property that is allegedly held on trust for Sunnya, which would increase the value of Jatcorp's 51 per cent shareholding in the company. There is no suggestion that Jatcorp is acting other than with an honest belief that it has good causes of action against the defendants, or that it is acting for some collateral purpose. [2]
Subsection 237(2)(d), which is directed to whether there is a serious question to be tried, establishes a relatively low threshold. The defendants were served prior to the hearing of the application with the plaintiffs' extensive affidavit evidence that was read at the hearing of the application as establishing the factual basis for the claims in the Sunnya proceedings. In those circumstances, I am content to accept and act on the defendants' concession that there is a serious question to be tried in determining an application for leave under s 237, except in relation to the claim for relief in prayer 37 of the Second Further Amended Statement of Claim referred to at [21] and [22] above. For the reasons explained at [53] to [56] below, that claim (as presently pleaded) was exposed during the hearing of the present applications as failing to raise a serious question to be tried.
In relation to sub-s 237(2)(e), the present application has been foreshadowed for many months and the He Parties do not dispute that they have had ample notice of it.
I am therefore satisfied of the matters in sub-ss 237(2)(a), (b), (d), and (e) in relation to the Sunnya proceedings other than the claim for relief in prayer 37 of the Second Further Amended Statement of Claim.
It remains to consider whether sub-s 237(2)(c) is satisfied.
An applicant for leave under s 237 is required to satisfy the court on the balance of probabilities that the proceedings are in the best interests of the company. That can only be determined by taking into account all circumstances relevant to the company's separate and independent welfare, which will predominantly reflect the interests of its shareholders in their capacity as such. [3] There is a wide range of matters that affect this assessment. These include: [4] 1. the character of the company; 2. the business of the company, and the effects of the proposed litigation on the proper conduct of that business; 3. whether there are alternative means of achieving the redress sought that do not require drawing the company into litigation that it has not determined to pursue for itself; 4. whether any judgment in the company's favour will be of practical benefit to the company, which directs attention to the enforceability of any such judgment against the prospective defendant, and their ability to meet any such judgment; and 5. the likely consequences for the company if the action is unsuccessful.
Having determined that it is satisfied that there is a serious question to be tried, the court does not consider the underlying merits or prospects of success of the proposed proceedings for the purpose of determining whether it is satisfied that it is in the best interests of the company that the applicant be granted leave to bring the proceedings for and in the name of the company. However, in cases where the court has doubts about the prospects of success of the proposed proceedings, the court can make a grant of leave conditional on the applicant undertaking to indemnify the company for any liability for costs that it may incur in pursuing the proposed proceedings. [5] The adequacy of an indemnity for the costs liability to which the company will be exposed if leave is granted and the proposed proceedings ultimately fail has been a relevant and significant matter in many cases in determining whether it is in the best interests of the company that the applicant be granted leave under s 237. [6]
Jatcorp submits that a grant of leave for it to bring the Sunnya proceedings is in the best interests of Sunnya because: 1. the object of the Sunnya proceedings is to enforce Sunnya's claimed rights that underpin its distribution, export, and sale of the "Neurio" brand of products, which were Sunnya's most successful line of products; 2. if leave is not granted, there are no other means by which Sunnya could obtain the relief sought - the proposed defendants will not voluntarily return the intellectual property claimed by Sunnya, and will not pay compensation or provide the account of profits claimed by Sunnya without an order of the Court; and 3. the defendants to the proceedings have the financial ability to satisfy or substantially satisfy any monetary judgment; 4. there is no question about the defendants' ability to satisfy a judgment in relation to the non-monetary relief sought, including injunctions, and orders for the imposition of constructive trusts over intellectual property, and that relief has value to Sunnya; 5. the expert evidence tendered at the hearing of the s 237 application establishes that it is possible for Sunnya to enforce any judgment in its favour against GABT and GNT in China; and 6. if leave is not granted, the interlocutory orders that have been made against the defendants (on Sunnya's application, with the benefit of an interim grant of leave under s 237) will be discharged, and Sunnya will become liable for any damages pursuant to the usual undertakings as to damages given in support of those applications for interlocutory relief, whereas a grant of leave on a final basis will afford Sunnya the opportunity to prosecute the claims, which the defendants accept raise a serious question to be tried.
Jatcorp submits that Sunnya's prospects of success in the proceedings are sufficiently strong that a grant of leave is in its best interests without making such leave conditional on Jatcorp indemnifying Sunnya in respect of its exposure to costs liability in the proceedings. However, in the event that the Court would not be satisfied as required by sub-s 237(2)(c) in the absence of an indemnity, Jatcorp offers: 1. an indemnity in favour of Sunnya against any adverse costs order awarded to any of the defendants in the Sunnya proceedings; and 2. an undertaking to pay any enforcement costs for the enforcement of any judgment obtained in this Court in China, subject to Jatcorp being entitled to recover those enforcement costs from Sunnya in the event that any such judgment is successfully enforced there.
With the exception of the claims for relief in prayers 36 and 37 of the Second Further Amended Statement of Claim to which I have referred to at [21] and [22] above, the He Parties submit that the Court should only be satisfied that it is in Sunnya's best interests to grant leave to Jatcorp if leave is granted conditionally upon: 1. Jatcorp undertaking to the Court to indemnify Sunnya against all adverse costs orders in the Sunnya proceedings; and 2. in addition to that indemnity in respect of adverse costs orders, Jatcorp undertaking to the Court to pay, and to indemnify Sunnya against, all costs, charges, and expenses of and incidental to the commencement and continuation of the Sunnya proceedings against GABT and GNT (including legal costs on a solicitor and client basis), which the He Parties estimate will account for approximately 10 per cent of Sunnya's total costs of the proceedings; and 3. Jatcorp undertaking to the Court to pay, and to indemnify Sunnya against, all costs, charges, and expenses of and incidental to the costs of enforcing any judgment of this Court in favour of Sunnya against GABT and/or GNT in China (including legal costs on a solicitor and client basis), subject to the proviso that Jatcorp will be entitled to recoup those costs from the proceeds of any judgment of this Court successfully enforced in China.
The He Parties submit that these undertakings and indemnities are necessary in order for a grant of leave to be in Sunnya's best interests because the Sunnya proceedings involve significant cost, and the prospects of enforcing any judgment of this Court in favour of Sunnya against GABT and GNT in China are uncertain. With the exception of the claims for relief in prayers 36 and 37 of the Second Further Amended Statement of Claim, the He Parties do not dispute Jatcorp's contentions summarised at [41] above, and do not identify any reason why the Court should not be satisfied that it is in Sunnya's best interests to grant leave to Jatcorp to bring the proceedings for and in the name of Sunnya if Jatcorp provides those undertakings and indemnities.
The proceedings involve claims against multiple defendants, each of which involves significant factual and legal complexity. The defendants' evidence has not yet been served. I do not accept Jatcorp's submission that the Court is presently able to assess the prospects of success as being so strong that there is little risk of any adverse costs order against Sunnya. Sunnya will be exposed to that risk, which is one of the inherent risks involved in litigation of this kind. The risk is not insignificant, given that the proceedings have been listed for hearing with an estimate of 16 days. As the He Parties submitted, this is a case in which a grant of leave will involve Sunnya being exposed to that risk at the instigation of its 51 per cent shareholder, over the objection of its 49 per cent shareholder. In those circumstances, it is my opinion that it is appropriate that the risk of such adverse costs orders should be borne by Jatcorp, rather than by Sunnya. Accordingly, the grant of leave under s 237 will be conditional on Jatcorp undertaking to the Court to indemnify Sunnya against all adverse costs orders in the Sunnya proceedings.
That undertaking will indemnify Sunnya against any adverse costs orders that may be made against it in favour of GABT and GNT if its claims against those defendants fail. As referred to at [43(2) above, the He Parties submit that a grant of leave under s 237 should also be conditional on Jatcorp indemnifying Sunnya in respect of the costs of prosecuting the claims against GABT and GNT, even if Sunnya's claims against those two defendants succeed. I reject that submission. If Sunnya succeeds in its claims for relief against those two defendants, there is no reason why it should be indemnified and shielded from ultimately bearing the costs of achieving that success. I do not consider that it is relevant to determine whether those costs would account for 10 per cent of Sunnya's total costs in prosecuting the proceedings (as the He Parties submitted) or five per cent of those costs (as Jatcorp submitted). I accept Jatcorp's submission that, if Sunnya succeeds in its claims for a declaration that GABT holds the Australian "Neurio" trademarks on trust for the benefit of Sunnya, orders restraining GABT from using or exploiting, and from preventing GABT from using or exploiting, those trademarks, and an order that GABT assign the registration of those trademarks to Sunnya, that is likely to be of value to Sunnya in Australia irrespective of whether Sunnya succeeds in enforcing a judgment of this Court in China. Moreover, Sunnya is the cross-defendant to the cross-claim filed by GABT in the Sunnya proceedings on 19 December 2022. Many of the issues raised by that cross-claim overlap with the issues raised by the claims against GABT in respect of which Jatcorp seeks leave under s 237. At this stage, Sunnya cannot assume that GABT will not take steps to appear at the final hearing and to prosecute its cross-claim. It would be difficult to separate the costs incurred by Sunnya in prosecuting its proposed claims against GABT, from the costs incurred by Sunnya in defending the cross-claim. For those reasons, the grant of leave under s 237 will not be conditional on Jatcorp giving an undertaking in the terms referred to at [43(2) above.
The He Parties accept that there is a path by which Sunnya may endeavour to enforce in China any judgment of this Court against GABT and GNT. That concession was appropriately made, having regard to the expert report of Ms Wenjun Cai that was tendered at the hearing of the s 237 application in relation to Chinese law, including art 289 of the Civil Procedure Law of the People's Republic of China, [7] and the practices of courts in that jurisdiction in relation to the recognition or enforcement of foreign judgments under the principle of reciprocity. Nevertheless, there is considerable force in the He Parties' submission that the prospects of successfully enforcing any judgment against GABT and GNT in China are inherently uncertain. The expert report of Ms Wenjun Cai did not identify any case in which a judgment of an Australian court has been recognised and enforced by a court in China. I accept the submission made on behalf of the He Parties that it would only be in the best interests of Sunnya to grant leave under s 237 conditionally upon Jatcorp undertaking to the Court to pay, and to indemnify Sunnya against, the costs of enforcing any judgment against GABT and/or GNT in China. The He Parties acknowledge that, if Sunnya does succeed in any such enforcement action, then Jatcorp will be entitled to recoup those costs from the proceeds of the judgment that is successfully enforced in China.
For those reasons, subject to the issues raised by the He Parties in relation to the proposed claims in prayers 36 and 37 of the Second Further Amended Statement of Claim, there will be a grant of leave under s 237 conditional on Jatcorp filing a written undertaking to the Court: 1. to indemnify Sunnya against all adverse costs orders in the Sunnya proceedings; and 2. to pay, and to indemnify Sunnya against, the costs of enforcing any judgment of this Court in favour of Sunnya against GABT and/or GNT in China (including legal costs on a solicitor and client basis), subject to Jatcorp being entitled to recover those costs from Sunnya in the event that any such judgment is successfully enforced in China.
Jatcorp has indicated its willingness to give such undertakings if necessary, as noted above. The He Parties did not raise any question about Jatcorp's financial capacity to comply with such undertakings.
I now turn to consider whether the grant of leave under s 237 should exclude the proposed claims in prayers 36 and 37 of the Second Further Amended Statement of Claim, as submitted by the He Parties. Those are the proposed claims referred to at [21] and [22] above for a declaration that GABT has authorised Sunnya to exclusively have the permanent right to use the Chinese "Neurio" trademarks globally, and for an order requiring GABT to transfer those Chinese trademarks to Sunnya.
The He Parties submit that these claims have low prospects of success because: 1. the Letter of Authorisation particularised in paragraph 61 of the Second Further Amended Statement of Claim was given for a specific purpose, and the authorisation was limited to the opening of a self-run online platform from which "Neurio" products could be purchased, as pleaded in paragraph 61 of the He Parties' Amended Defence; 2. Sunnya gave no consideration for the Letter of Authorisation, and it was therefore open to GABT to vary or revoke the authorisation at any time, which GABT did on 21 October 2022, as pleaded in paragraph 61 of the He Parties' Amended Defence; and 3. as pleaded in paragraph 62 of the He Parties' Amended Defence, the Letter of Statement particularised in paragraph 62 of the Second Further Amended Statement of Claim was, at its highest, a statement of intention on the part of GABT about transferring an unidentified trademark, was gratuitous in the sense that Sunnya provided no consideration for the Letter of Statement, and did not constitute a binding agreement to transfer the Chinese-registered "Neurio" trademarks to Sunnya.
Jatcorp relies on the Letter of Authorisation particularised in paragraph 61 of the Second Further Amended Statement of Claim as supporting the proposed claim in prayer 36 for a declaration that GABT has authorised Sunnya to exclusively have the permanent right to use the Chinese-registered "Neurio" trademarks. Jatcorp emphasised that the Letter of Authorisation was signed by GABT under its corporate seal. It seems to me to be implicit in paragraph 61 of the Second Further Amended Statement of Claim that the alleged authorisation is legally binding on GABT. The He Parties have not submitted that there is no serious question to be tried raised by the proposed claim in prayer 36. In my opinion, the issues raised by the He Parties about the scope of the authority, whether it was revocable, and whether it has in fact been revoked, are matters for trial. Given that a serious question to be tried has been established, [8] the prospects of success of this particular claim are not relevant for the purpose of sub-s 237(2)(c), except to the extent that they may be taken into consideration in determining whether leave should be conditional on Jatcorp indemnifying Sunnya in respect of any adverse costs orders. [9] I have already addressed the question of indemnities.
Jatcorp relies on the Letter of Statement particularised in paragraph 62 of the Second Further Amended Statement of Claim as supporting the proposed claim in prayer 37 for an order requiring GABT to transfer the seven Chinese "Neurio" trademarks to Sunnya. The Letter of Statement states: "This is to certify that Guangzhou Aotea Biological Technology PTE Ltd, owner of the trademark 'Niu Rui You' and Sunnya Pty Ltd, Australian owner of the trademark Neurio, are in a cooperation relationship. Also, Guangzhou Aotea Biological Technology PTE Ltd is taking steps to transfer the trademark in China to Sunnya Pty Ltd."
Paragraphs 61 to 63 of the Second Further Amended Statement of Claim do not disclose any cause of action that might arguably entitle Sunnya to a transfer of the Chinese-registered "Neurio" trademarks. The Letter of Statement refers to only one trademark, whereas prayer 37 seeks an order requiring GABT to transfer to Sunnya seven Chinese-registered "Neurio" trademarks. More importantly, it is not pleaded in the Second Further Amended Statement of Claim that the Letter of Statement, or the "cooperation relationship" referred to in the Letter of Statement, was a binding contract. Nor is it pleaded that the Letter of Statement contained representations from which GABT is estopped from departing. Nor is it pleaded that the Letter Statement was misleading or deceptive in contravention of the Australian Consumer Law [10] or other legislation, entitling Sunnya to relief that might potentially include an order for the transfer of the Chinese-registered "Neurio" trademarks.
When asked to identify the cause of action underpinning the proposed claim in prayer 37 of the Second Further Amended Statement of Claim, senior counsel for Jatcorp was ultimately able to put it no higher than "what is intended to be conveyed here is a relationship giving rise to the transfer of the trademarks in China to Sunnya". [11]
It is my opinion that the Further Amended Statement of Claim does not disclose even a weak case for an order requiring GABT to transfer the Chinese-registered "Neurio" trademarks to Sunnya. Contrary to the He Parties' concession that sub-s 237(2)(d) is satisfied in relation to the Sunnya proceedings generally, [12] the pleadings relevant to the claim for that relief in prayer 37 of the Further Amended Statement of Claim do not articulate a cause of action and therefore do not disclose a serious question to be tried. Accordingly, the grant of leave under s 237 will exclude the claim for relief in prayer 37 of the Further Amended Statement of Claim. If Jatcorp is able to identify a cause of action supporting prayer 37, it would be open to Jatcorp to apply for leave to amend to plead that cause of action, and for leave under s 237 in respect of that claim.
In summary, for the reasons explained above, there will be a grant of leave under s 237 nunc pro tunc for Jatcorp to bring the Sunnya proceedings on behalf of and in the name of Sunnya, with the exception of the claim in prayer 37 of the Second Further Amended Statement of Claim in respect of which no such leave is granted. The grant of leave will be conditional on Jatcorp filing a written undertaking to the Court: 1. to indemnify Sunnya against all adverse costs orders in the Sunnya proceedings; and 2. to pay, and to indemnify Sunnya against, the costs of enforcing any judgment of this Court in favour of Sunnya against GABT and/or GNT in China (including legal costs on a solicitor and client basis), subject to Jatcorp being entitled to recover those costs from Sunnya in the event that any such judgment is successfully enforced in China.

Section 242 application

Section 242 of the Corporations Act provides: The Court may at any time make any orders it considers appropriate about the costs of the following persons in relation to proceedings brought or intervened in with leave under section 237 or an application for leave under that section: (a) the person who applied for or was granted leave; (b) the company; (c) any other party to the proceedings or application. An order under this section may require indemnification for costs.
Subject to one qualification, the He Parties do not oppose the Court making an order under s 242 of the Corporations Act that Sunnya pay the plaintiffs' reasonable costs of bringing the Sunnya proceedings against the defendants, but submit that any such order should be made on an interim basis only, so that it is capable of being reversed if and to the extent that the plaintiffs in the Sunnya proceedings are unsuccessful. The qualification is that the He Parties submit that the Court should not make any costs order under s 242 of the Corporations Act, even on an interim basis, in respect of the claims against GABT and GNT.
Jatcorp accepts that any order made under s 242 is necessarily of an interim nature and that it is always open to the Court to vary or set aside such an order. Jatcorp submits that there is no reason to exclude the costs of bringing the claims against GABT and GNT from an order made under s 242.
In circumstances where All168 - the 49 per cent shareholder of Sunnya - does not oppose an interim order under s 242 (except in relation to the costs of bringing the claims against GABT and GNT), I proceed on the assumption that Sunnya has the financial capacity to fund the Sunnya proceedings in accordance with such an order and that this would not adversely affect the conduct of Sunnya's business operations or its asset base. [13] I am therefore satisfied that an order under s 242 is appropriate, noting that it can be revisited if the claims in the Sunnya proceedings later turn out to be unmeritorious. [14] I accept the He Parties' contention that the costs of the claims against GABT and GNT should be excluded from the order under s 242 at this stage, albeit for slightly different reasons than those articulated in the He Parties' submissions. My reasons are that one apparently significant aspect of the claims against GABT has been excluded from the grant of leave under s 237, and, as discussed below, the proceedings will not go forward against GNT - notwithstanding the grant of leave under s 237 - unless and until GNT files an appearance in the proceedings or the Court grants leave to the plaintiffs to proceed against GNT under UCPR r 11.8AA. It would therefore be premature, in my opinion, to make an order at this stage that the plaintiffs' costs of bringing the claims against GABT and GNT be paid by Sunnya. The appropriate costs orders in relation to those claims can be considered once the proceedings have been heard and determined.

Application under r 11.8AA

As I have already mentioned, GNT is a company registered in China. Jatcorp adduced evidence that the originating process and the subsequent iterations of the pleadings in the Sunnya proceedings have been sent to the email address for GNT. Jatcorp relies on Part 11 and Schedule 6 of the UCPR as authorising service of the originating process on GNT outside Australia without leave, and seeks leave under r 11.8AA to proceed against GNT because GNT has not filed an appearance. In circumstances where Jatcorp is to be granted leave under s 237 of the Corporations Act, the application for leave under r 11.8AA can be regarded as an application made by the plaintiffs in the Sunnya proceedings.
Rule 11.4 of the UCPR provides that originating process may be served outside of Australia without leave in the circumstances referred to in Schedule 6, which sets out a number of connecting factors between a defendant and New South Wales that can provide sufficient justification for this Court to exercise personal jurisdiction over that defendant notwithstanding that they are outside New South Wales. Rule 11.5 provides that, if service is not permitted under Schedule 6, an originating process may be served outside of Australia with the leave of the Court.
Rule 11.6 provides: (1) On application by a person on whom an originating process has been served outside of Australia, the court may dismiss or stay the proceeding or set aside service of the originating process. (2) Without limiting subrule (1), the court may make an order under this rule if satisfied - (a) that service of the originating process is not authorised by these rules, or (b) that the court is an inappropriate forum for the trial of the proceeding, or (c) that the claim has insufficient prospects of success to warrant putting the person served outside Australia to the time, expense and trouble of defending the claim.
Rule 11.7 provides: If a person is to be served outside of Australia with an originating process, the person must also be served with a notice in the approved form informing the person of - (a) the scope of the jurisdiction of the court in respect of claims against persons who are served outside Australia, and (b) the grounds alleged by the plaintiff to found jurisdiction, and (c) the person's right to challenge service of the originating process or the jurisdiction of the court or to file a conditional appearance.
The approved form of notice is Form 161 to the UCPR, which states: To the Defendant: 1. You have been served with an originating process outside Australia under Rule [specify the rule (#11.4 and Schedule 6 / #11.5)] of the Uniform Civil Procedure Rules 2005 which apply in the Supreme Court of New South Wales. A copy of the Rule is enclosed for your information. Rules 11.3 to 11.8AC show the scope of the jurisdiction of the Court in respect of claims against persons who are served outside Australia. 2. The grounds alleged by the plaintiff to support its claim to be entitled to serve you outside of Australia and in the case of rule 11.4, the paragraph/s of Schedule 6 relied upon are: [specify grounds] 3. The Court may, on application made by you in accordance with the rules of Court, dismiss or stay the proceeding or set aside the service on you of this originating process. Without limiting the Court's powers in this regard, the Court may dismiss or stay the proceeding or set aside the service on you if satisfied that - (a) the service was not authorised by the rules of the Court; or (b) this Court is an inappropriate forum for the trial of the proceedings; or (c) the claim has insufficient prospects of success to warrant putting you to the time, expense and trouble of defending the claim. 4. Alternatively you may file an unconditional notice of appearance (in the form prescribed by the rules of the Court) within the time required under the rules of the Court. 5. If you file an unconditional notice of appearance, additional procedural obligations (such as an obligation to file a defence or an affidavit) may apply to you in accordance with the Rules of the Court. 6. If you do not make an application to set aside service referred to in paragraph 3 or file an unconditional notice of appearance, the Court may give leave to the plaintiff to proceed against you without further notice.
Rule 11.8 requires a defendant who has been served outside of Australia to file an appearance within 42 days from the date of service, unless the Court otherwise orders.
Rule 11.8AA provides: (1) If an originating process is served on a person outside Australia and the person does not enter an appearance, the party serving the document may not proceed against the person served except by leave of the court. (2) An application for leave under subrule (1) may be made without serving notice of the application on the person served with the originating process.
I pass over r 11.8AB, which concerns service of documents other than originating process outside Australia.
Rule 11.8AC provides: A document to be served outside Australia need not be personally served on a person so long as it is served on the person in accordance with the law of the country in which service is effected.
The plaintiffs did not adduce any evidence about whether service of originating process by email is in accordance with the law of the People's Republic of China. Moreover, senior counsel for the plaintiffs candidly disclosed to the Court during the hearing of the applications that the documents sent to GNT by email did not include the notice required by r 11.7.
In those circumstances, the plaintiffs ask the Court to: 1. make an order for substituted service of the Second Further Amended Statement of Claim on GNT by email, so that the manner in which that document has already been sent to GNT will constitute substituted service in accordance with that order, in which case the plaintiffs submit that r 11.7 will not apply and the Court can determine the plaintiffs' application under for leave to proceed against GNT under r 11.8AA without having regard to their failure to serve the r 11.7 notice on GNT; or 2. alternatively, permit the plaintiffs to defer the application under r 11.8AA for leave to proceed against GNT, in which case they will seek to proceed with that application once the Second Further Amended Statement of Claim has been served on GNT together with the r 11.7 notice; or 3. alternatively, to make an order dispensing with the requirement for the plaintiffs to serve the r 11.7 notice on GNT.
In my opinion, the first and third courses proposed by the plaintiffs have no merit.
Service of process out of Australia is an unusual assertion by the Court of an extra-territorial jurisdiction, with potential international repercussions. That is why service outside of the jurisdiction is carefully controlled by legislation and rules of court, including Part 11 of the UCPR. [15] Whilst the rules in Part 10 of the UCPR permitting substituted service apply to service on defendants outside Australia in proceedings in this Court, those rules are not a means of conveniently side-stepping the limitations that ordinarily apply to service outside Australia. Orders for substituted service of court process outside Australia should only be made in circumstances where service cannot practicably be effected in accordance with the relevant rules or legislation. [16] The plaintiffs did not adduce any evidence that service, including the r 11.7 notice, cannot practicably be effected on GNT in accordance with r 11.8AC. [17] Nor did the plaintiffs adduce any evidence of any exceptional circumstances that might warrant an order dispensing with the requirements of r 11.8AC in this case. [18]
Contrary to the submissions made by senior counsel for the plaintiffs, any order for substituted service in this case would not absolve the plaintiffs from their failure to include the r 11.7 notice with the materials served by way of substituted service served. The evidence presently before the Court does not disclose any reason why it would be appropriate to make an order under s 14 of the Civil Procedure Act 2005 (NSW) or r 2.1 of the UCPR dispensing with the requirement for that notice to be served on GNT. Unlike ASIC v Sweeney (No 2), where the defendant on whom substituted service had been effected outside Australia was a senior legal practitioner who had practised in Australia for a substantial period of time prior to the commencement of the proceedings, the Court could not be satisfied in the present case that the information in the r 11.7 notice is already known to GNT and that the plaintiffs' failure to serve that notice on GNT has not caused any injustice to GNT. [19]
For those reasons, the second course proposed by the plaintiffs is the only appropriate course in all the circumstances. There will be an order adjourning the application under r 11.8AA to the first day of the final hearing, an order under r 11.8 that GNT file an appearance within 12 days after the date of service, and an order requiring the plaintiffs to serve these reasons for judgment and orders on GNT at the same time as effecting service of other materials required to be served in accordance with Part 11. The evidence that was adduced by the plaintiffs indicates that GNT's email address to which previous iterations of the pleadings have been sent is an active email address. It is therefore highly likely that the Sunnya proceedings have come to the attention of GNT. In those circumstances, I consider that the period of 12 days is sufficient time for GNT to digest the information in the r 11.7 notice and thereafter to determine whether it wishes to make an application of the kind referred to in paragraph 3 of the r 11.7 notice in the proceedings of which it is already aware, whether it wishes to file an appearance and defend the proceedings, or whether it wishes to do nothing and let the proceedings take their course with the risk that judgment may be entered against it in its absence.
The orders that are to be made nunc pro tunc granting leave to Jatcorp under s 237 of the Corporations Act to bring the Sunnya proceedings for and in the name of Sunnya will not operate to permit the plaintiffs to proceed against GNT unless and until GNT files an appearance in those proceedings or the Court grants leave under r 11.8AA. That is the effect of r 11.8AA.

Conclusion and orders

For the foregoing reasons, the Court makes the following orders, directions and notation: 1. Order pursuant to s 237 of the Corporations Act 2001 (Cth) granting leave nunc pro tunc to the second plaintiff to bring proceedings 2022/329426 on behalf of and in the name of the first plaintiff, with the exception of the claim in prayer 37 of the Second Further Amended Statement of Claim filed proceedings 2022/329426, conditional on the second plaintiff filing a written undertaking to the Court: 1. to indemnify the first plaintiff against all adverse costs orders in proceedings 2022/329426; and 2. to pay, and to indemnify the first plaintiff against, the costs of enforcing in the People's Republic of China any judgment of this Court in favour of the first plaintiff against the third defendant and/or the fourth defendant in proceedings 2022/329426 (including legal costs on a solicitor and client basis), subject to the second plaintiff being entitled to recover those costs from the first plaintiff in the event that any such judgment is successfully enforced in China. 1. Note that order 1 does not entitle the plaintiffs to proceed against the fourth defendant in proceedings 2022/329426 unless and until the fourth defendant files an appearance in those proceedings, or leave is granted to the plaintiffs to proceed against the fourth defendant pursuant to r 11.8AA of the Uniform Civil Procedure Rules 2005 (NSW). 2. Order pursuant to s 242 of the Corporations Act 2001 (Cth) that, until further order, the first plaintiff is to pay the plaintiffs' reasonable costs of bringing the proceedings 2022/329426 against the first, second, and fifth to tenth defendants. 3. Adjourn the plaintiffs' application under r 11.8AA of the Uniform Civil Procedure Rules 2005 (NSW) for leave to proceed against the fourth defendant in proceedings 2022/329426 to 28 September 2023. 4. Order pursuant to r 11.8 of the Uniform Civil Procedure Rules 2005 (NSW) that the time for the fourth defendant to file an appearance in proceedings 2022/329426 is abridged to 12 days after the date of service in accordance with r 11.8AC of the Uniform Civil Procedure Rules 2005 (NSW). 5. Direct the plaintiffs are to include a copy of these orders, and the reasons for judgment dated 12 September 2023, in the materials served on the fourth defendant in accordance with r 11.8AC of the Uniform Civil Procedure Rules 2005 (NSW).

Endnotes

Re Sunnya Pty Limited [2023] NSWSC 225.
See In the matter of Wonga Pastoral Development Co Pty Ltd [2023] NSWSC 133 (Re Wonga Pastoral) at [28]-[31] (Black J), and the authorities there referred to.
Huang v Wang (2016) 114 ACSR 586; (2016) 34 ACLC 16-022; [2016] NSWCA 164 (Huang) at [57]-[59] (Bathurst CJ, McColl JA and Barrett AJA agreeing), and the authorities there referred to.
Mount Gilead Pty Ltd v Macarthur-Stanham (as executor of the Estate of the late Lee Macarthur-Onslow) [2023] NSWCA 37 at [26] (Bell CJ, Ward P and White JA agreeing); Swansson v R A Pratt Properties Pty Ltd (2002) 42 ACSR 313; (2002) 20 ACLC 1,594; [2002] NSWSC 583 at [57]-[60] (Palmer J).
Huang at [60] (Bathurst CJ, McColl JA and Barrett AJA agreeing).
Re Wonga Pastoral at [41] (Black J).
«中华人民共和国民事诉讼法» [Civil Procedure Law of the People's Republic of China] (People's Republic of China) National People's Congress, Order No 44, 9 April 1991.
See [32] above.
See [39]-[40] above.
Competition and Consumer Act 2010 (Cth), sch 2.
T41.12-43.50.
See [32] above.
Song v Li [2021] VSC 617 at [77] (Button J).
Wood v Links Golf Tasmania Pty Ltd (2010) 28 ACLC 10-042; [2010] FCA 570 at [9]-[12] (Finkelstein J).
See also the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, opened for signature 15 November 1965, 658 UNTS 163 (entered into force 10 February 1969) (the Hague Convention), which came into effect in Australia on 1 November 2010, Part 11A of the UCPR, and the Trans-Tasman Proceedings Act 2010 (Cth), which are not applicable in the present case.
Australian Securities and Investments Commission v Sweeney (No 2) (2001) 38 ACSR 743; [2001] NSWSC 477 (ASIC v Sweeney (No 2)), especially at [19]-[41] (Austin J), and the authorities there referred to. Austin J's analysis in ASIC v Sweeney (No 2) was referred to with approval in Flo Rida v Mothership Music Pty Ltd [2013] NSWCA 268 at [36] (Macfarlan JA, Ward and Gleeson JJA agreeing). See also Arhill Pty Ltd v General Terminal Company Pty Ltd (1990) 23 NSWLR 545 at 551 (Rogers CJ), noting that that case concerned the service of subpoenas to produce under the Supreme Court Rules 1970 (NSW).
UCPR, r 10.14.
Cf Independent Liquor & Gaming Authority v Melco Resorts & Entertainment Limited [2022] NSWSC 294, in which Ball J held that the steps that the plaintiff had taken by way of service were more likely to bring the proceedings to the attention of the defendant in the Hong Kong Special Administrative Region of the People's Republic of China than would have been the case if service had been effected strictly in accordance with r 11.8AC. His Honour held that, in those exceptional circumstances, it was appropriate to make an order under UCPR r 10.14(3) that the defendant be taken to have been served by the plaintiff having taken those steps which had brought the proceedings to the attention of the defendant. There was no question in that case about any failure to serve the notice required by UCPR r 11.7.
ASIC v Sweeney (No 2) at [58]-[61]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 12 September 2023

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (8 paragraphs)

Legislation Cited (6)

Cases Cited (11)

Cited By (3)