[2004] HCA 61
F45 Training Pty Ltd v Body Fit Training Company Pty Ltd [2020] NSWSC 1879
Re Wakim
Source
Original judgment source is linked above.
Catchwords
[2004] HCA 61
F45 Training Pty Ltd v Body Fit Training Company Pty Ltd [2020] NSWSC 1879
Re Wakim
Judgment (3 paragraphs)
[1]
Solicitors:
SMB Law (Plaintiff)
Webb Henderson (Defendants)
File Number(s): 2021/186738
[2]
Judgment
By an amended notice of motion filed on 7 September 2021, the defendants seek an order pursuant to s 1337H of the Corporations Act 2001 (Cth) (the Corporations Act), alternatively, s 5(1) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) (the Cross-vesting Act), or, in the further alternative, s 5(1) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW), to have this proceeding transferred to the Victoria Registry of the Federal Court of Australia.
In this proceeding the plaintiff, Ms Lin, who is a unitholder in the Cornerstone New SIV Bond Fund (CNSBF), sues the first defendant, One Fund Management Limited (OFML), the trustee of the fund, and the second to fifth defendants (the Directors), who are or were the directors of OFML, for losses she suffered on her investment in the fund.
Ms Lin alleges that between about 30 August 2016 and 3 April 2020 OFML, in breach of its duties as a trustee, used trust assets to acquire a series of unsecured debentures issued by Agricultural Land Trust (ALT) for an aggregate amount of about $76,950,000 in circumstances where OFML knew (1) that ALT would on-lend the money to iProsperity Underwriting (IPU) and (2) that it was a term of the debentures that the principal would not be repaid unless and until ALT was repaid by IPU. Ms Lin also alleges that the Directors knowingly procured the alleged breaches.
There is currently a proceeding before the Federal Court in Melbourne (the Chen Proceeding) in which Mr Chen, who was an investor in the Cornerstone Bond Fund (CBF), another fund of which OFML was trustee, sues OFML, One Investment Administration Limited (OIAL), a related party of OFML, and three of the Directors for losses he suffered on his investment. Mr Chen also brings claims against Mr Michael Gu, a director of Cornerstone Capital Investment Group Pty Ltd (now in liquidation) (CCIG), the former investment manager of CBF (and CNSBF), and CCIG's insurer. In the Chen Proceeding, it is alleged (to quote from para [9] of an affidavit sworn by the Defendants' solicitor in support of the application):
a. OFML breached its trustee duties and obligations to CBF unitholders by engaging in the following (at [17]-[20] of the Chen ASOC):
i. acquiring ALT Debentures;
ii. lending funds to the iProsperity Property Opportunities Fund (IPPOF), a separate fund of which OFML was trustee;
iii. lending funds to G&H Partners, an entity of which Michael Gu was a director; and
iv. making and executing the "True Trust Investment Objective", this being OFML's alleged intention to solely or predominantly invest or lend to companies of which Michael Gu was a director;
b. OIAL and OFML's directors knowingly procured or induced the alleged breaches referred to at paragraph 9a (at [21]-[22] of the Chen ASOC);
c. OFML made misleading or deceptive representations in the CBF Information Memorandum, in contravention of s12DA of the ASIC Act 2001 (Cth), s18 of the Australian Consumer Law and/or s1041H of the Corporations Act 2001 (Cth) (at [38] of the Chen ASOC); and
d. OFML's directors engaged in, or were involved in, the alleged contraventions referred to at paragraph 9c, by reason of their knowledge of the contravening conduct (at [39] of the Chen ASOC).
The defendants seek an order that this proceeding be transferred to the Federal Court with the intention that the two proceedings be heard together. Ms Lin opposes the motion.
It is apparent from the brief description of the two proceedings that in both proceedings it is alleged that:
1. OFML breached its duties as trustee by acquiring ATL debentures. In this proceeding, it is alleged that debentures to the value of $76,950,000 were acquired between 30 August 2016 and 3 April 2020 as trustee of the CNSBF. In the case of the Chen Proceeding, it is alleged that debentures to the value of $28,500,000 were acquired between 31 December 2016 and 31 December 2019 as trustee of the CBF;
2. The Directors (or some of them) knowingly procured those breaches of duty.
A number of other parties are joined, and a number of other issues are raised, in the Chen Proceeding. As to that, the solicitor for the defendants says in his affidavit that "I am instructed that, should the Lin Proceeding be transferred to the Federal Court of Australia, the defendants undertake to propose to the Court that the plaintiffs/applicants not be required to attend these unrelated aspects of the corresponding hearings" (at para [11]).
Ms Lin resides in China. The legal practitioners who act for her are based in Sydney. OFML is a corporation incorporated in New South Wales. The Directors all reside in New South Wales. The constitution of the CNSBF is governed by New South Wales law. The claim in the proceeding is that OFML breached its duties as trustee, including the duties imposed on it by the Trustee Act 1925 (NSW).
The plaintiff no longer seeks compensation under the Corporations Act. Accordingly, s 1337H of the Corporations Act is no longer relevant to the defendants' application. The Cross-vesting Act and the New South Wales equivalent are relevantly in similar terms. It is sufficient for the purposes of this judgment to focus on the Cross-vesting Act.
Section 5(1) of the Cross-vesting Act provides:
(1) Where:
(a) a proceeding (in this subsection referred to as the relevant proceeding) is pending in the Supreme Court of a State or Territory (in this subsection referred to as the first court); and
(b) it appears to the first court that:
(i) the relevant proceeding arises out of, or is related to, another proceeding pending in the Federal Court or the Federal Circuit and Family Court of Australia (Division 1) and it is more appropriate that the relevant proceeding be determined by the Federal Court or the Federal Circuit and Family Court of Australia (Division 1);
(ii) having regard to:
(A) whether, in the opinion of the first court, apart from this Act and any law of a State relating to cross-vesting of jurisdiction and apart from any accrued jurisdiction of the Federal Court or the Federal Circuit and Family Court of Australia (Division 1), the relevant proceeding or a substantial part of the relevant proceeding would have been incapable of being instituted in the first court and capable of being instituted in the Federal Court or the Federal Circuit and Family Court of Australia (Division 1);
(B) the extent to which, in the opinion of the first court, the matters for determination in the relevant proceeding are matters arising under or involving questions as to the application, interpretation or validity of a law of the Commonwealth and not within the jurisdiction of the first court apart from this Act and any law of a State relating to cross-vesting of jurisdiction; and
(C) the interests of justice;
it is more appropriate that the relevant proceeding be determined by the Federal Court or the Federal Circuit and Family Court of Australia (Division 1), as the case may be; or
(iii) it is otherwise in the interests of justice that the relevant proceeding be determined by the Federal Court or the Federal Circuit and Family Court of Australia (Division 1);
the first court shall transfer the relevant proceeding to the Federal Court or the Federal Circuit and Family Court of Australia (Division 1), as the case may be.
Nothing in s 5 confers on a court jurisdiction which that court would not otherwise have: s 5(9).
The principles applicable in determining whether it is in the "interests of justice" to transfer a proceeding were recently summarised by Emmett AJA in F45 Training Pty Ltd v Body Fit Training Company Pty Ltd [2020] NSWSC 1879 at [8] in these terms:
In determining where the interests of justice lie, the Court is required to consider and identify the "natural forum" in which it might be expected that the dispute should be resolved. In determining that question, it is necessary to analyse objective factors to facilitate identification of the "natural forum", and the concomitant forensic and judicial advantages and disadvantages for the parties. In the present context, it is not necessary that the Supreme Court be a clearly inappropriate forum. Rather, it is both necessary and sufficient that, in the interests of justice, the Federal Court is more appropriate. If the Federal Court is more appropriate than this Court, however so slightly, the transfer to the Federal Court is mandatory. That is to say, this Court does not retain a residual discretion to refuse to transfer the proceedings if the Federal Court is, having regard to the interests of justice, more appropriate than this Court. [Citations omitted]
This approach calls for what Street CJ described in Bankinvest AG v Seabrook (1988) 14 NSWLR 711 at 713-714 in a passage cited with approval by Gleeson CJ, McHugh and Heydon JJ in BHP Billiton Ltd v Schultz (2004) 221 CLR 400 at 421; [2004] HCA 61 at para [13] as a "'nuts and bolts' management decision".
In determining the interests of justice, the interests of all parties must be considered and the interest of the plaintiff, in selecting a particular forum, is not to be preferred over the interests of the defendant in having the proceeding determined in a different forum: BHP Billiton Ltd at [16] (Gleeson CJ, McHugh and Heydon JJ) and at para [77] (Gummow J).
Ms Lin resists transfer on two principal grounds. First, she submits that transfer cannot occur because the Federal Court does not have jurisdiction to hear her claim. That turns on the question whether this proceeding arises out of the same matter as the Chen Proceeding, with the result that the Federal Court would have accrued jurisdiction to hear this proceeding. That, in turn, turns on the question whether in substance the issues raised in this proceeding and the issues (or some of them) raised in the Chen Proceeding are part of the same controversy: see Re Wakim; ex parte McNally (1999) 198 CLR 511 at 585 per Gummow and Hayne JJ.
It is unnecessary for me to consider the first issue, since I have concluded that, even if the Federal Court has jurisdiction, it is not in the interests of justice to order that this proceeding be transferred.
Leaving aside the question of the overlap of the two proceedings, it seems plain that the Victorian Registry of the Federal Court is not the more appropriate forum to determine this dispute. The dispute is concerned wholly with New South Wales (and not Commonwealth) law. The proceeding has no obvious connection with Victoria. All of the individual defendants are resident in New South Wales. The solicitors for Ms Lin and the defendants are located in Sydney. In substance, it is the defendants' contention that these considerations are outweighed by the desirability of hearing the two cases together. That, in turn, is said to have two aspects. The first is that it is said that it will be more efficient if the two cases are heard together, since the Directors and any experts the defendants call will only need to give evidence once. Second, it is submitted that if this proceeding is transferred that will eliminate the risk of inconsistent findings.
Implicit in the defendants' first argument is the assumption that the two cases will be heard together. Whether that is so or not, however, may be open to some doubt; and if they are heard together that will raise the question whether an order is made that evidence in one proceeding is to be evidence in the other. Indeed, given the limited overlap of the issues in the two cases, the likelihood is that if they are both managed in the same list, no order relating to the trial would be made until the evidence is complete. Only then would it be possible for the Court to make an informed decision on whether the two cases should be heard together and whether evidence in one should be evidence in the other. Accordingly, whether or not this proceeding is transferred, the likelihood is that the two cases will be prepared separately. That is, separate witness statements or affidavits will be exchanged in the two proceedings, separate expert reports will need to be prepared addressing the particular circumstances of each case and separate orders for disclosure will need to be made. The fact that there is an overlap in the two cases may mean that some material prepared by the defendants for one case can be used for the other. But that is true wherever the cases are heard.
There appear to be three main possibilities in relation to the hearings if the cases are in the same list. The first is that the cases are heard consecutively. The second is that they are heard together. The third is that they are heard together and an order is made that evidence in one is to be evidence in the other. As I have said, which order is ultimately made is likely to depend on the issues in each case as finally disclosed by the evidence. From the defendants' point of view, there is unlikely to be a great deal of difference between consecutive hearings before the same judge in Melbourne and a hearing of the Chen Proceeding in Melbourne and this proceeding in Sydney. It is true that if the cases are heard consecutively, those on the defendants' side will only need to set aside one block of time, instead of two. But the total length of the two hearings is unlikely to be substantially different. On any view, the Directors will only be required to travel to Melbourne once. The position may be improved from the defendants' point of view if the two proceedings are heard together. But that is likely to be at the expense of Ms Lin. Inevitably, if the two cases are heard together, Ms Lin's lawyers will be affected because they will not be involved in a single continuous hearing. That is likely to add to Ms Lin's costs of the case, particularly if an order is made that evidence in one case is to be evidence in the other. The position may be ameliorated if the Court makes an order of the type suggested by the defendants' solicitor. However, Ms Lin's lawyers will still need to make an assessment of the evidence filed in the Chen Proceeding to determine whether any of it is relevant to her case. If they conclude that it is, they may wish to make an application to cross-examine the person giving that evidence. The likelihood is that they will want to monitor the whole hearing to guard against the possibility that something may happen that will affect their client.
It might be said that if this proceeding is transferred, that will permit a single court to balance the competing interests in deciding how best to hear the two cases. But, in my opinion, that is not the proper way to consider the matter. Ms Lin was plainly entitled to commence proceedings in this Court. This Court is the natural forum to deal with the relevant dispute. There may be case management advantages for the defendants if the proceeding is transferred. How significant those advantages are will ultimately depend on the way in which the two cases are heard. On the other hand, it seems plain that a transfer will operate to the disadvantage of Ms Lin, since at a minimum she will be required to conduct a case in Melbourne when she has engaged solicitors in Sydney to conduct the case on her behalf. In my opinion, the possible case management advantages of transfer do not outweigh the desirability of this proceeding being heard in its natural forum and the certain disadvantages that Ms Lin will suffer if this proceeding is transferred.
The defendants' second argument over-states the problem. Inconsistent judgments are undesirable because they have a tendency to bring the administration of justice into disrepute. However, there is no possibility of inconsistent judgments in this case. The essential issue in this proceeding is whether OFML breached its duties as trustee by acquiring ALT debentures to the value of $76,950,000 between 30 August 2016 and 3 April 2020 for the CNSBF. Relevantly, the essential issue in the Chen Proceeding is whether OFML breached its duties as trustee by acquiring ALT debentures to the value of $28,500,000 between 31 December 2016 and 31 December 2019 for the CBF. A conclusion in one case that OFML breached its duty and in the other that it did not does not involve inconsistent findings. It is possible that if the two cases are heard by different judges, those judges could express different views on the same question. For example, it is theoretically possible that one judge could conclude that no trustee, consistently with its duties, could have acquired ALT debentures in any circumstances, whereas another may conclude that in the particular circumstances of the case, OFML did not breach its duties by acquiring ALT debentures. But those possibilities are merely speculative. Similar issues arise if the one judge hears the two cases but on the basis of different evidence. The important point is that the two proceedings raise different albeit similar issues. If they are heard separately, they will be decided on the basis of different evidence. In those circumstances, there seems little risk of the type of inconsistency that is likely to bring the administration of justice into disrepute. Accordingly, in my opinion, little weight should be given to this consideration.
It follows that I am not satisfied that the Federal Court is the more appropriate forum to hear this dispute.
The orders of the Court are:
1. The defendants' amended notice of motion filed on 7 September 2021 is dismissed with costs.
2. The matter is listed for directions on 19 November 2021.
[3]
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Decision last updated: 15 November 2021