Yang v Zhao, in the matter of KQ International Trading Pty Ltd

Background 1 By a statement of claim filed 31 January 2020, the plaintiff seeks relief against the defendants under s 1324 of the Corporations Act 2001 (Cth). Section 1324(1) provides: 1324 Injunctions (1) Where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute: (a) a contravention of this Act; or (b) attempting to contravene this Act; or (c) aiding, abetting, counselling or procuring a person to contravene this Act; or (d) inducing or attempting to induce, whether by threats, promises or otherwise, a person to contravene this Act; or (e) being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this Act; or (f) conspiring with others to contravene this Act; the Court may, on the application of ASIC, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first-mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing. 2 The defendants have asked for particulars of a number of critical allegations made in the statement of claim, which the plaintiff refuses to provide. 3 The statement of claim is in these terms: 1. The plaintiff in this proceeding is the shareholder of the company KQ International Trading Pty Ltd. 2. At all relevant times, first and second defendants were directors of the company. 3. At all relevant times the third defendant was a legal practitioner instructed by the company and by the first defendant. 4. The company was formed in July 2006. The company is a replaceable rules company. 5. The company was previously trading and is not presently trading. It was previously involved in clothing wholesaling and importation. 6. The company has 100 shares divided as follows: 10% to Fang XIE 40% to Qian WU 50% to the plaintiff (Jia Fu YANG). 7. The total number of company shares issued was 100 units valued at $1 per share. The company has no assets. 8. The first and second defendants are not and have never been shareholders of the company. 9. In July 2010 the plaintiff applied to ASIC to deregister the company and the company was subsequently deregistered. 10. In about March 2011 an application was purportedly made to re-instate the company following an apparent meeting held by the two other directors, then Qian WU and Fang XIE. 11. The purpose of this meeting was to remove the plaintiff as director. 12. This meeting was requested by the first defendant and apparently held on or about 26 July 2010. 21. [sic] While the plaintiff did not receive notice of this meeting, the meeting was apparently held on 26 July 2010 where the then two 'directors' Fang XIE and Qian WU 'resolved' to remove me as director. 13. As a replaceable rules company, the two directors had no basis in the Corporations Act to remove the plaintiff. 14. As a replaceable rules company, the two directors even as shareholders, did not have the requisite shareholding to pass an ordinary resolution to remove the plaintiff pursuant to s 203C of the Corporations Act. 15. On or about 7 March 2017, the two directors Qian WU and Fang XIE were removed as directors without notice to the plaintiff. Once again, there was not the requisite shareholding to pass an ordinary resolution. 16. In an application to ASIC in March 2011, the company was sought to be re-instated but the plaintiff's directorship was not re-instated. 17. In 2012, the re-instated company with the first and second defendants at its helm and the third defendant as its solicitor, filed proceedings against the plaintiff in the Supreme Court of Victoria alleging breaches of director's duties to the company. 18. In about April 2016 the company obtained judgement against the plaintiff. 19. The first defendant appeared on behalf of the company and claimed inter alia, that he was authorised to act for the company in respect of the proceedings, claiming that (a) he instructed the two then 'directors' being Qian WU and Fang XIE to hold a directors meeting to remove the plaintiff and that he did not receive a response from the plaintiff; (b) that a meeting was conveniently held on 26 July 2010 just before the plaintiff is said to have applied to de-register the company; (c) that it was 'resolved' at that meeting that the plaintiff would be removed as a director of the company; and (d) that the company was subsequently re-instated on 25 March 2011. 20. On 25 May 2011, the first defendant was apparently appointed as a director of the company. 21. On 1 June 2011, the second defendant was appointed as a director of the company. 22. When the company was re-instated, the two directors remaining being Qian WU and Fang XIE were not residents of Australia. On his appointment on or about 25 May 2011, the first defendant was not a resident of Australia and there was no resident director until the appointment of the second defendant. 23. On 26 July 2010 the two directors (or even as shareholders) could not have validly held a meeting at which they could have passed any resolution to remove the plaintiff given their combined shareholding is only 50%. 24. Even if the purported removal of the plaintiff as director was valid on 26 July 2010, it would be invalidated by the fact that neither Qian WU nor Fang XIE were residents of the Commonwealth of Australia where the plaintiff was also the Secretary of the company. 25. The first and second defendants directed the meeting, the re-instatement of the company and, aided by the third defendant (then the solicitor for the company) went on to bring proceedings against the plaintiff. 26. The third defendant, as the company's then lawyer, was instructed by the first and second defendants to enable the re-instatement and bring proceedings against the plaintiff. 27. In the Supreme Court of Victoria proceedings, the first defendant claimed that he was acting on behalf of the company. 28. The plainitiff [sic] is concerned that the first and second defendants will not pay heed to the shareholding of the company if or when distributing the so-called damages the company is claiming from the plaintiff. Given the first defendant's conduct, the plaintiff is concerned that he will appropriate for himself any damages recovered by the company. 29. While they are directors, the first and second defendants did not indicate how he would allocate any moneys recovered in damages, which in fact, has to flow down to the shareholders of the company. 30. Given (a) the plaintiff's removal as a director was invalid and improbable; (b) there was no resident director or secretary of the company between its reinstatement in March 2011 until June 2011; (c) the plaintiff was subsequently sued by the company as directed by the first and second defendants aided by the third defendant; (d) Qian WU and Fang XIE were subsequently removed as directors of the company, leaving only the first and second defendants (husband and wife) in control; and (e) the first and second defendants are not and have not ever been shareholders of the company, the defendants, unless restrained, intend to appropriate to themselves any moneys obtained from the execution of the judgement. 31. In the circumstances each of the defendants contravened the Corporations Act because of the foregoing acts. AND THE PLAINTIFF CLAIMS AGAINST EACH DEFENDANTS: A. An injunction interim and final, pursuant to s.1324 restraining each of them from acting for or on behalf of the company; B. Further or in the alternative, an injunction against each of the first and second defendants (if they remain in control of the company) directing them to explain and manage the distribution of any funds recovered as damages from the plaintiff to the shareholders of the company and any other order that the Court may deem necessary to restrain the first and second defendants or either of them from appropriating any funds; C. Any further or other order the Court deems appropriate or necessary; D. Cost. [sic] 4 On 26 February 2020, the solicitor for the first and second defendants made the following request for particulars: TAKE NOTICE that the First and Second Defendant requires the Plaintiff to provide the following further and better particulars of the Statement of Claim ('the Claim') filed on 31 January 2020 within 7 days of this request TAKE NOTICE that for the purpose of this request: A Where you are asked to provide the 'usual particulars' of any agreement, term of any agreement, request, consent, refusal, transaction, arrangement, information, instruction, assertion, representation, scheme, course of conduct, act, fact, matter or thing whether it was wholly or partly in writing, in computer-readable form, oral or to be implied: (a). Insofar as it was in writing, identify sufficiently each document or paper constituting any part of it and say where and in whose possession that document or paper now is, and when or where it may be inspected and, if it has been lost or destroyed say where a copy of it may be inspected and if there be no copy, give the material substance of it; (b). Insofar as it was contained in the computer-readable form (for example, a disk, tape, read only memory or similar) identify that form and say where and in whose possession it now is and when and where it may be inspected, if it has been lost or destroyed, say where a copy of it may be inspected and if there be no copy, give the material substance of it; Insofar as it was oral, say when, where and between what persons, and whether face to face, or by way of telephone or other remote means, each conversation constituting any part of it took place and give the material substance of each conversation; and (c). Insofar as it was to be implied, state the acts, facts, matters, circumstances and things, and when and where they occurred or arose, from which the implication is to be drawn, and if the contract, agreement, terms of any agreement, request, consent, refusal, transaction, arrangement, information, instructions, assertion, representation, scheme, course of conduct, act, fact, matter or thing (as the case may be) was made, entered, carried out or done by a person acting, or purporting to act, on behalf of or with the authority of another, give the like particulars as are sought above of the authority (expressed, implied or ostensible) of that person to act on behalf of the other. B Where you are asked to give 'the usual details' of: (a). Any matter, transaction, item, circumstance or thing, identify precisely the matter, transaction, item, circumstance or thing which is enquired of; and (b). The reason by which an allegation is made, set forth (with all material dates and places) each fact, act, matter, thing, circumstance or reason constituting or giving rise to the same. 1. Under paragraph 28 You are asked to provide the usual particulars and the usual details of your those two concerns [sic] in that paragraph. 2. Under paragraph 28 You are asked to provide the usual particulars and the usual details of 'the first defendant's conduct'. 3. Under paragraph 29 You are asked to provide the usual particulars and the usual details of the allegation that 'the first and second defendants did not indicate how he would allocate any moneys recovered in damages' in that paragraph. 4. Under paragraph 30 You are asked to provide the usual particulars and the usual details of the allegation that the first and second defendants will 'intend to appropriate to themselves any moneys obtained from the execution of the judgment'. 5 The same day, the third defendant made the following request for particulars by way of an email he sent to the plaintiff: I note you alleged that:- 1. In para 25, I 'aided' the first and second defendant to re-instate KQ International Trading Pty Ltd and bring proceedings against you; 2. In para 30(c), I 'aided' the first and second defendant to sue you by KQ International Trading Pty Ltd; and 3. In para 30, I am one of the defendants intends to appropriate to me [sic] and the other two defendants any moneys obtained from the execution of the judgment. I will not be in a position to file and serve a proper defence to your statement of claim filed on 31 January 2020 unless and until you provide me:- 1. Details of 'the proceedings' you referred to in para 25; 2. Precise particulars of transactions, acts, facts, conduct and a course of conduct of which I 'aided' the first and second defendants in those transactions contained in paras. 25 and 30(c); 3. Particulars of the those facts on which you rely to support your allegation that the first and second defendants together with me to appropriate to us [sic] any moneys obtained from the execution of the judgment of the Victorian Supreme Court against. Unless you to provide me your particulars by no later 4 pm on 6 March 2020 in order for me to seek legal advice, I may consider to issue an interlocutory application compelling you to provide me with those particulars requested by me without further notice to you. 6 The plaintiff has not provided any of the particulars the defendants have requested.