Zhao v First Shoreline Pty Ltd [2025] FedCFamC2G 745

Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).

1. The applicant, Mr Zhao alleges in his initiating application that during his employment with it from 2017 to 2023, the respondent, First Shoreline Pty Ltd, underpaid his salary, superannuation and leave entitlements in breach of the Fair Work Act 2009 (Cth) (FW Act). First Shoreline has filed a cross-claim alleging that Mr Zhao, as "de facto director of First Shoreline", husband of First Shoreline's minority shareholder, Xiao Chen, and someone significantly involved in the company's operations as a home builder, misappropriated funds due to First Shoreline and redirected some of those funds as well as business to another home building company he had established, Blueshine Construction Pty Ltd. The cross-claim alleges that Ms Chen was guilty of similar conduct and was also an accessory to Mr Zhao's conduct. The cross-claim further alleges in its prayers for relief that Blueshine Construction breached both of the limbs of Barnes v Addy [1874] UKLawRpCh 20; (1874) LR 9 Ch App 244 "by knowingly receiving the benefit of the Blueshine Construction Projects obtained by reason of Mr Zhao's and/or Ms Chen's breach of fiduciary duties" and "by knowingly assisting ... Mr Zhao and/or Ms Chen in their breaches of fiduciary duties".
2. The statement of claim seeks damages or compensation of $339,772 for underpayment of salary, $34,657.20 for underpayment of superannuation contributions and $59,431.86 for non-payment upon termination of accrued but untaken annual leave entitlements together with pecuniary penalties. The cross-claim seeks declarations that Mr Zhao and Ms Chen breached ss.181 and 182 of the Corporations Act 2001 (Cth) and fiduciary duties they owed to First Shoreline, damages, equitable damages or compensation, compensation under the Corporations Act, an account of profits, an order that Mr Zhao and Ms Chen pay such profits to First Shoreline and a declaration that Mr Zhao holds his shares in Blueshine Construction on trust for First Shoreline. The cross-claim also seeks against Blueshine Construction a declaration that it was involved in Mr Zhao and Ms Chen's breaches of the Corporations Act, declarations that it breached both limbs of Barnes v Addy, an account of profits, an order that it pay such profits to First Shoreline, compensation under the Corporations Act and equitable compensation or damages.
3. First Shoreline has filed an application in a proceeding seeking the transfer of the proceeding from this Court to the Federal Court of Australia pursuant to r 8.02 of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) (Rules) and s 153 of the Federal Circuit and Family Court of Australia Act 2021 (Cth) (Act). These reasons concern that application.
4. The parties have consented to the application being determined without an oral hearing and have filed written submissions.

153 Discretionary transfer of proceedings

(1) If:

(a) a proceeding is pending in the Federal Circuit and Family Court of Australia (Division 2); and

(b) the proceeding is not a family law or child support proceeding;

the Court may, by order, transfer the proceeding from the Court to the Federal Court.

(2) The Federal Circuit and Family Court of Australia (Division 2) may transfer a proceeding:

(a) on the application of a party to the proceeding; or

(b) on its own initiative.

(3) In deciding whether to transfer a proceeding to the Federal Court, the Federal Circuit and Family Court of Australia (Division 2) must have regard to:

(a) any Rules of Court made for the purposes of subsection 154(2); and

(b) whether proceedings in respect of an associated matter are pending in the Federal Court; and

(c) whether the resources of the Federal Circuit and Family Court of Australia (Division 2) are sufficient to hear and determine the proceeding; and

(d) the interests of the administration of justice.

(1) Unless the Court otherwise orders, an application under paragraph 153(2)(a) of the Act to transfer a proceeding from the Court to the Federal Court must:

(a) be made on or before the first court date for the proceeding; and

(b) be included in an application or a response in accordance with the approved form; and

(c) be supported by an affidavit.

(4) In addition to the factors to which the Court must have regard under subsection 153(3) of the Act in deciding whether to transfer a proceeding to the Federal Court, the Court must take the following factors into account:

(a) whether the proceeding is likely to involve questions of general importance, such that it would be desirable for there to be a decision of the Federal Court on one or more of the points in issue;

(b) whether, if the proceeding is transferred, it is likely to be heard and determined at less cost and more convenience to the parties than if the proceeding were not transferred;

(c) whether the proceeding will be heard earlier in the Court;

(d) the availability of particular procedures appropriate for the class of proceeding;

(e) the wishes of the parties.

(5) Before the Court makes an order under subsection 153(1) of the Act transferring a proceeding from the Court to the Federal Court:

(a) the Court must consult the Chief Judge of the Court in relation to the proposed transfer; and

(b) the Chief Judge of the Court must consult the Chief Justice of the Federal Court, or a delegate of the Chief Justice of the Federal Court, in relation to the proposed transfer.

(6) A failure to comply with this rule in relation to a proposed transfer of a proceeding under subsection 153(1) of the Act does not affect the validity of an order made under that subsection transferring the proceeding.

1. In support of its application, the respondent reads and relies on the affidavit of Mr Man Chun Yeung sworn 17 July 2024.
2. In sum, Mr Yeung deposed that:

(a) the defence and cross-claim raise complicated issues that will involve substantial legal argument and evidence;

(b) he estimates the hearing would take at least 5 days;

(c) the hearing will involve evidence from at least 3 lay witnesses and an expert forensic accountant;

(d) there is a large amount of documentary evidence including 3 years of financial records of each of the 4 parties to the cross-claim and contractual documents in relation to 12 building and construction projects; and

(e) the proceeding involves issues in relation to the FW Act, the Corporations Act 2001 (Cth) and general law.

1. First Shoreline's application for transfer has been made later than the Rules require but the other parties support it and make no objection to the point at which it was made. I grant First Shoreline leave to bring it out of time.

Whether the proceeding is likely to involve questions of general importance, such that it would be desirable for there to be a decision of the Federal Court or the Family Court on one or more of the points in issue

1. First Shoreline has submitted that transfer of the matter is appropriate because:
   1. The defence and cross-claim raise complicated issues that will involve substantial legal argument and evidence.
   2. A hearing is estimated to take at least 5 days.
   3. The hearing will involve evidence from at least 3 lay witnesses and an expert forensic accountant.
   4. There is a large amount of documentary evidence including at least 3 years of financial records and records relating to 12 building and construction projects.
   5. The proceedings will involve issues in relation to the Fair Work Act 2009 (Cth), the Corporations Act 2001 (Cth) and general law.
2. It was argued that while the statement of claim was relatively straightforward, the cross-claim has changed the ambit and complexity of the proceeding by alleging that Mr Zhao had misappropriated funds payable to First Shoreline in respect of 10 building projects over 2019, 2020 and 2021 and that it would be necessary to examine the documentation and financial records relating to each of those projects. The cross-claim also alleges that in breach of his duty owed to First Shoreline the applicant caused the respondent to conduct building works that are now the subject of separate proceedings and in which First Shoreline may be held liable for breaches of its statutory duties under the Home Building Act 1989 (NSW).
3. First Shoreline submitted that the cross-claim

... alleged that Mr Zhao ... diverted assets, opportunities, and profits which would otherwise have belonged to First Shoreline ... , to Mr Zhao's own company, Blueshine Construction. It is alleged that by doing so, Mr Zhao breached his equitable as well as Corporations Act duties which he allegedly owed to First Shoreline.

1. First Shoreline identified the following as a question of general importance that was likely to arise in this matter:

Where a court is otherwise satisfied that a defaulting fiduciary has diverted assets, opportunities, and profit belonging to the principal (to whom the fiduciary obligations and/or Corporations Act obligations were owed) to a company, under what circumstances will the Court grant a declaration of trust over the shares of a company held by a defaulting fiduciary (instead of or in addition to requiring the company to return the assets or the profit).

... the complexity of the matter will be further increased by additional oppression claims to be brought by Ms Chen, the second cross-defendant, against the cross-claimant/Respondent, which will inevitably create further jurisdictional issues.

1. I accept that although this was originally an unexceptional Fair Work matter, it now encompasses issues which engage the Court's equitable jurisdiction and, it is assumed in the cross-claim, its associated jurisdiction to decide matters under the Corporations Act. Matters such as this are not commonly dealt with in this Court and will test its expertise. They would be better dealt with in the Federal Court because it has the necessary expertise.
2. Moreover, it is unlikely, but undecided by any binding authority to which I have been taken, that this Court has jurisdiction to deal with the Corporations Act contraventions alleged by the cross-applicant or the oppression allegations that have been foreshadowed by Ms Chen.

The availability of particular procedures appropriate for the class of proceeding

1. As far as I can tell, no particular procedures will be necessary to facilitate the preparation and determination of this matter. I appreciate that the Federal Court has a national Employment and Industrial Relations practice area, but the argument advanced in that connection by the respondents turned more on the number of judges attached to that area, than on procedures that might be employed to the advantage of this litigation.

If the proceeding is transferred, it is likely to be heard and determined at less cost and more convenience to the parties than if the proceeding is not transferred

1. Given that no special procedures are necessary in this matter and that it will be a proceeding of some complexity, it is not likely that cost and convenience will be less in the Federal Court than in this Court.

Will the proceeding be heard earlier in the Federal Circuit and Family Court of Australia (Division 2)

1. It is difficult to determine whether the proceedings would be heard earlier in the Federal Court than this Court, other than to observe that this Court has more judicial review matters awaiting determination than it can reasonably cope with and this case will require some form of expedition, even if only informal, for it to be heard in a reasonable time. I do not understand the Federal Court to be in the same position.

1. The cross-applicant applies for the transfer and the cross-respondents consent.

Whether proceedings in respect of an associated matter are pending in the Federal Court

1. It was not suggested that associated proceedings are pending in the Federal Court.

Whether the resources of the Federal Circuit and Family Court of Australia (Division 2) are sufficient to hear and determine the proceeding

1. It is unlikely that this matter would require resources not available in this Court.

1. The parties are likely to receive an earlier hearing from a judge more experienced with the relevant law if the matter were to be transferred to the Federal Court. Further, the unlikely existence of associated jurisdiction to determine the Corporations Act claims would not be an issue if the matter were heard in the Federal Court.

1. The Chief Judge and the Chief Justice of the Federal Court have been consulted in accordance with this sub-rule and have agreed to the transfer of this matter to the Federal Court.

1. For the reasons I have given I conclude that this matter should be transferred to the Sydney Registry of the Federal Court of Australia.

I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Cameron.