A recent application in the Supreme Court of New South Wales, in the matter of Featherston Resources Limited; Tetley & ors v Weston & ors [2014] NSWSC 1139, considered the Court’s jurisdiction to grant leave to bring a derivative action in respect of a foreign registered company subject to a foreign deed of company arrangement (DOCA) and the operation of the Trans-Tasman Proceedings Act (2010) (Cth) (Trans-Tasman Act).

Brereton J determined that:

  • the Supreme Court of New South Wales had no jurisdiction to grant leave to bring proceedings on behalf of a foreign registered company subject to a foreign DOCA; and
  • even if it had jurisdiction, the proceedings would have been stayed under the Trans-Tasman Act.

Background

FRL is a company incorporated in New Zealand and subject to a DOCA under the Companies Act 1993 (NZ) (NZ Act). FRL is also a registered foreign company under the Corporations Act 2001 (Cth) (Australian Act).

Twelve shareholders of FRL (the plaintiffs) applied for leave to bring a derivative action on behalf of FRL against the directors of FRL and certain other persons. The plaintiffs sought leave pursuant to sections 236 and 237 of the Australian Act, and alternatively in the Court’s inherent jurisdiction. The application was filed in the Supreme Court of New South Wales.

PLAMAN Group, one of the prospective defendants of the derivative action, applied to have the proceedings stayed either:

  1. as an abuse of process under the Uniform Civil Procedure Rules 1999 (NSW) or the inherent jurisdiction of the Court; or
  2. pursuant to the Trans-Tasman Act on the basis that the High Court of New Zealand is the more appropriate court.

PLAMAN’s application was supported by the other prospective defendants.

The application was successful. In reaching his decision, Brereton J considered four main issues:

(1) Are sections 236 and 237 of the Australian Act available in respect of a registered foreign company?

Section 236 and 237 of the Australian Act permit the Court to grant leave to a person to bring proceedings on behalf of “a company registered under this Act”. Brereton J rejected the plaintiffs’ submission that this included a foreign company registered under the Australian Act (such as FRL).

Brereton J drew a distinction between the concepts of “a company registered under this Act” and “a foreign company registered under Division 2 of Part 5B.2”, being the relevant part of the Australian Act dealing with registration of foreign companies.

On that basis, Brereton J held that the Supreme Court of New South Wales did not have jurisdiction to grant leave to the plaintiffs to commence proceedings on behalf of FRL under the Australian Act.

(2) Does the Court have inherent jurisdiction to grant leave?

In the alternative, the plaintiffs sought leave under the Court’s inherent jurisdiction.

Brereton J held that this jurisdiction, if it existed, would only exist as an incident of the Court’s supervisory jurisdiction. The court with supervisory jurisdiction in this case was the High Court of New Zealand, being the court of the administration of FRL, rather than the Supreme Court of New South Wales. On this basis, the Court had no inherent jurisdiction to grant leave to bring the derivative action.

It was unnecessary for Brereton J to consider in what circumstances a statutory or inherent jurisdiction to grant leave may exist in the court with the relevant supervisory jurisdiction.

(3) Do the proceedings require the leave of the High Court of New Zealand?

Under the NZ Act, a person subject to a DOCA must not “except with the court’s permission, begin or continue a proceeding against the company or in relation to any of its property.

Brereton J held that a derivative suit was not relevantly an action against FRL, or in respect of its property.

As such, if the Court otherwise had jurisdiction, the absence of leave from the High Court of New Zealand would not have operated as a bar to the proceedings.

(4) Is the High Court of New Zealand the “more appropriate Court”?

The proceedings were subject to the Trans-Tasman Act as they involved parties from New Zealand. If the Supreme Court of New South Wales did have jurisdiction, it would have been necessary to consider whether the application in New South Wales should have been stayed on the basis that the High Court of New Zealand was the more appropriate court to determine the application.

Brereton J considered the operation of the Trans-Tasman Act, even though his Honour concluded that the Supreme Court of New South Wales did not have jurisdiction.

In order for a stay to be granted under the Trans-Tasman Act, it is necessary that the New Zealand Court:

  1. has jurisdiction to determine the matters; and
  2. is the more appropriate court. The Trans-Tasman Act contains a non-exhaustive list of factors that are to be taken into account in making this assessment.

The High Court of New Zealand clearly had the necessary jurisdiction.

Brereton J considered the following factors in considering whether the High Court of New Zealand was the more appropriate Court in the circumstances:

  • place of residence or principal place of business: other than FRL and one of the named defendants, all other parties were ordinarily resident in Australia;
  • place of residence of witnesses: the overwhelming majority of witnesses resided in Australia (and, more particularly, in New South Wales);
  • place of subject matter: the subject matter of the proceedings was FRL’s causes of action. It was likely that some of the relevant conduct occurred in Australia, but that some also occurred in New Zealand;
  • any agreement about the court: there was no relevant choice of jurisdiction agreement;
  • most appropriate law to apply: it was not clear whether there was any significant difference in the law to be applied in relation to the granting of leave, and it was not clear to what extent Australian law would govern the substantive proceedings;
  • similar or related proceedings: there were no similar or related proceedings commenced in New Zealand;
  • financial circumstances of the parties: there was no relevant evidence regarding the financial circumstances of the parties;
  • other matters: FRL was subject to a DOCA in New Zealand, and the bringing of a derivative action on behalf of FRL would necessarily impact on the interests of the parties to the DOCA. Brereton J indicated that consideration of these issues is something more appropriately undertaken by the court supervising the DOCA (being the High Court of New Zealand). Brereton J specifically did not take into account the possibility that the plaintiffs’ prospects of success may have been superior in New South Wales (although it was not clear to his Honour why this would be the case in any event).

The various factors did not point unanimously to one court being more appropriate than another. The convenience of the parties favoured New South Wales, but other matters (including the subject of the claim and the status of FRL, being subject to a DOCA in New Zealand) favoured New Zealand. On balance, Brereton J considered the High Court of New Zealand was the more appropriate court. On that basis, even if the Supreme Court of New South Wales did have jurisdiction, Brereton J would have stayed the proceedings under the Trans-Tasman Act.