IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION JUDGMENT No, wach y T4 ooneseoucn eoenrececoes No. NG 3434 of 1994 BETWEEN : SHANE WILLIAM WALKER Applicant AND: KEVIN HAWTHORNE NINJA SCHOOLS PTY LIMITED ACN 006 703 804 Respondent JUDGE MAKING ORDERS: FOSTER J DATE: 18 NOVEMBER 1994 PLACE: SYDNEY RECEIVED 21 NOV 1994 FEDERAL COURT OF MINUTE OF ORDERS AUSTRALIA PRINCIPAL REZ TRY THE R RDER_ THAT: 1. The Motion for security for costs be dismissed with costs. These proceedings be transferred to the Victorian Registry of this Court. The costs of the application for transfer be costs in the application for winding-up. Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 3434 of 1994 ) ) GENERAL DIVISION BETWEEN: SHANE WILLIAM WALKER Applicant AND: KEVIN HAWTHORNE NINJA SCHOOLS PTY LIMITED ACN 006 703 804 Respondent CORAM: FOSTER J DATE: 18 NOVEMBER 1994 PLACE: SYDNEY NS FOR NT HIS HONOUR: I have for determination two Notices of Motion brought by the abovenamed respondent company. The first seeks an order for security for costs in the amount of $5,000. The second seeks a transfer of the whole of the proceedings to the Victorian District Registry of this Court. The principal proceedings between the parties consist of an application by the applicant ("Walker") under s 462 of the Corporations Law. He claims orders that the respondent "be wound up on the just and equitable ground". He seeks, also, the appointment of a liquidator and costs. By way of interlocutory relief an order is sought for the appointment of a receiver to the respondent. 2. The respondent company opposes the winding up application on a number of grounds set out in its Notice of Opposition. This Notice is verified by the affidavit of Alexander Smith Clark, a Director. In determining these Notices of Motion it is necessary to refer briefly to facts asserted by Walker in support of his claim for a winding up. He asserts an association with Kevin Hawthorne ("Hawthorne") since July 1983, in which month he met him at "his martial arts club" in Boronia, Victoria. Then a schoolboy, Walker trained with the club and in about September 1984 became an instructor at the request of Hawthorne, who offered him free classes in return for performing this role. In 1985, he entered into a new arrangement with Hawthorne whereby he taught more classes for monetary payment. Thereafter, Walker worked to an increasing extent in the business. The number of students increased and the number of martial arts clubs controlled by Hawthorne increased to about 40 in Melbourne. In late 1987 a "full-time clubhouse" was set up in Malvern Street, Bayswater, Victoria. Previously, it appears, classes were run in temporarily hired accommodation. In connection with the obtaining of more permanent club premises, Walker alleges that he contributed his savings of $2,000 which was used in acquiring the 3. necessary lease. Walker worked in the new premises as an instructor on a wage of $100 per week. In November 1988 Hawthorne informed Walker that he had formed the respondent company. There were two shareholders, Hawthorne and his mother, each holding 50% of the shares. Hawthorne offered his mother's shareholding to Walker and also indicated that he wanted Walker to become "the other director". Walker agreed to the proposal and, accordingly, became a 50% shareholder in the company and also the second Director. Thereafter the company gradually increased the size of its business and by 1990 had branches in New South Wales. In 1991 there were branches in the ACT, Tasmania, Western Australia and Queensland. Walker alleges that he set up these branches, placed instructors in charge of them and travelled backward and forward periodically to check on the performance of the instructors. He received $150 a week which was on many occasions not paid in full, a credit list being established "accounted as a Director's Loan". In February 1990 two cars were purchased, one for Hawthorne's use and the other for Walker's. In October 1991 Hawthorne again varied Walker's pay struc.ure. He was to .secveive 50% of "what we get in from New South Wales and Queensland because I feel that will give you more incentive to ensure these branches are going well". It appears that Walker's pay depended upon unilateral decisions made by Hawthorne. 4. In 1992 disagreements occurred between the two men as to the running of the company, in particular as to the behaviour of employees and the character of some of the students. Walker made protests which were ignored by Hawthorne. In February 1992 problems occurred in New South Wales which resulted in Hawthorne sending Walker to this State, in effect, to take over the branch. Arrangements for pay were vague and involved the use of the credit list. Walker, in order to conduct the New South Wales operation, resided in Sydney. Problems occurred in relation to the running of the company. Walker asserts that he had considerable difficulty in making contact with Hawthorne and in obtaining information as to the company's operation. In particular, he had another variation of pay imposed upon him and a lack of financial assistance in the running of the New South Wales operation. He says that Hawthorne said to him "you're not sending any money to support the company so why should the company support you?"". In 1993 the problems increased. They were aggravated by Walker's suffering a knee injury at work which made it impossibie ror him to continue, at that time, as an instructor. On 14 October 1993 he wrote to Hawthorne, advising him of his physical difficulties and tendering his resignation as Director. He received a reply from Hawthorne indicating that the company's accountant had advised him that 5. it was necessary that there be relevant company and Director's meetings in December and that, in the circumstances, it would be best if he resigned on 31 November 1993. A second letter from Hawthorne, on 9 November, spoke of "a recent company meeting regarding the matter of your resignation" and said that "the general consensus was that it has been accepted and I would like to finalise the matter as soon as possible". The letter contained a lot of information as to the clubs in New South Wales, the ACT and Newcastle. The information is ina disjointed form. The letter appears to carry the message that there was to be a severance of the clubs in which Walker had been working from the company's clubs, together with unclear statements as to financial arrangements. It enclosed "the resignation forms". The letter has an air of hostility about it which was lacking in the previous one. In June 1994, Walker was in Melbourne. He was served with a complaint issued out of the Magistrate's Court at Heidelberg. It is a civil claim on behalf of the company alleging indebtedness of Walker to the company. Walker has counter-claimed in the proceedings for money allegedly owing by the company to him. The claim and counter-claim are to be heard, as a result of special fixture, in the Court early in December. It seems clear that Walker has, relevantly, submitted to the jurisdiction of this Victorian Court. In July of this year, two men, Phillips and Stanton, made attempts to remove Walker's company vehicle. They were 6. unsuccessful on each occasion. On the second occasion, entry had been forced into the vehicle by the smashing of a window. The Police were called. Before their arrival Walker was offered violence by Stanton. The two men were taken to the local Police Station. Walker provided a statement as to the occurrence. He was shown a letter signed by Hawthorne authorising Stanton and Phillips to recover the vehicle. He has taken proceedings for apprehended violence against Stanton, Hawthorne and Phillips. Since this occurrence, Walker has received abusive, threatening and obscene letters which he asserts have emanated from Stanton with the knowledge of Hawthorne. Apart from other matters, they assert that the writer has taken over Walker's position in the company and his car. On 9 December 1993 Walker's solicitors wrote to the Directors of the company in reply to the letter which had requested the "resignation forms". It was asserted on Walker's behalf that he was a 50% shareholder and Director of the respondent company and that his resignation as a Director, never accepted, was withdrawn. Information was sought, also, as to the "company meeting" alleged to have been held in the absence of Walker. It appears that no reply was received to this letter. However, annexed to Walker's affidavit, is a form apparently lodged on behalf of the company with the Australian Securities Commission which shows Walker as having resigned as a Director on 31 December 1993. Walker asserts 7. that he did not authorise the lodgment of this form and has not in fact resigned. The same document shows him as holding one of two ordinary shares of $1 nominal value. He says that he was never notified of any meeting of the company which removed him as a Director and appointed Alexander Smith Clark as a Director. Walker claims that he is, in all the circumstances, fearful for his safety and "relations between myself and Hawthorne have broken down to an extent that the company's affairs cannot properly be conducted". There is obviously dispute as to a number of Walker's allegations. Affidavit and oral evidence given by Hawthorne raise a "clean hands" issue. He asserts that Walker's exclusion from company activities related to his "embezzlement" of company funds in the New South Wales operation and his alleged appropriation of the company's business in New South Wales by his setting up a business on his own account. This is denied by Walker. It is also alleged against Walker that he had caused considerable problems in the company by sexual attentions paid to underaged girls who were students. This is also denied. It is further asserted by Hawthorne, by way of opposition to the making of the winding-up order, that Walker was never more than a "nominal" Director of the company and that his shareholding was similarly "nominal", it being always 8. understood that Hawthorne, as originator of the business, effectively owned the company. It is also put against the winding-up order that the company is managed efficiently, is prospering, and has an extensive Australia-wide business. Any differences between Walker and the company can, it is submitted, be readily resolved without a winding-up order being made. Against this background, I turn to consider the Notices of Motion. In relation to the application by the company for security for costs, I have received evidence by affidavit and orally as to the financial position of Walker. He is 27 years ot age and, it is clear, has little financial substance readily available to him. However, it must be borne in mind, that it is a significant part of his case that he is a 50% owner of the respondent company and its assets. He asserts a case which, if proved, is a substantial one. I am satisfied that if an order for security for costs were now made it might well stifle the case he seeks to bring. Conversely, it appears that the respondent company has a valuable business and assets. In the exercise of what is a wide discretion, I refuse, at this stage, to make any order for security for costs. This Notice of Motion 1s consequently dismissed. I turn to the respondent's application that the whole of the proceedings be transferred to the Victorian 9. Registry. It 1s quite clear that the respondent company, for practical purposes, resides in and conducts its business in the State of Victoria. For the most part, witnesses that might be called in relation to the disputed questions of fact reside in Victoria. The company's accountant is in Victoria. The civil litigation between the parties is to be heard in Victoria. The current application to restrain that litigation brought on behalf of the applicant can, subject' to jurisdictional questions, in my view, be best heard in Victoria. Indeed, if, as would appears to be the position, this Court has no power to restrain those proceedings, power to do so may well be found the Supreme Court of Victoria. It would also appear that the main events upon, which the claim to wind-up is based, occurred in Victoria. The applicant, in opposition to this motion, relies upon the fact that he has commenced his proceedings in the New South Wales Registry, New South Wales being the State in which he currently resides. He does not allege, however, that he would be financially unable to travel to Victoria if the proceedings were held there. Indeed, it appears that his parents reside in that State. In any event, he has currently submitted to the jurisdiction of the Victorian Magistrate's Court and will, presumably, travel to Victoria to defend the action against him and to prosecute his counter-claim. It should also be noted that his counsel made it clear that if the proceedings were transferred to the Victorian Registry, he 10. would not seek to proceed with the claim for interlocutory relief in Sydney, but would raise that matter in Victoria. The applicant opposes the transfer, also, on the basis that he fears for his safety in Victoria. He bases this claim upon the fact that violence has been offered to him in the manner described above and that he has been subjected to abusive and threatening letters which he asserts, on prima facie reasonable grounds, emanate from persons associated with the business. I have given this submission careful consideration. I note that he has taken proceedings for apprehended violence in New South Wales and has also made complaint to the Australian Federal Police in relation to the letters. I am not aware as to whether he has had orders made in his favour in relation to the apprehended violence summonses. If so, those orders would only apply and be enforceable in New South Wales. However, it would be strange indeed if the Victoria Police would not, in circumstances where the orders have been made, respond readily to an application for assistance if made by the applicant in Victoria on reasonable grounds. In any event, as I have said, it appears that the applicant will travel to Victoria in relation to the civil proceedings in the Magistrate's Court. Accordingly, this consideration does not persuade me against transferring these proceedings to the Victorian Registry. Finally, it was put on behalf of the applicant that the case is such a plain one that it would be futile to 11. transfer it to Victoria as the company must inevitably be wound-up as a result of this application. I am not, at this stage, prepared to hold that this result is inevitable. I consider that the order could be made only after a full hearing of the issues raised in the proceedings. Accordingly, I have come to the view that it is appropriate to transfer these proceedings to the Victorian Registry and I propose to make such an order. I consider that the applicant is entitled to his costs in relation to the application for security. I consider, however, that the costs of the application for transfer should reasonably await the ultimate outcome of the proceedings. They, accordingly, should be made costs in the application. I therefore make the following orders:- 1. That the Motion for security for costs be dismissed with costs. 2. These proceedings be transferred to the Victorian Registry of this Court. 3. That the costs of the application for transfer be costs in the application for winding-up. I certify that this and the preceding ten (10) pages are a true copy of the reasons for judgment herein of the Honourable Mr Justice M. L. Foster. Associate: hoce Date: 18 NOVEMBER 1994 APPEARANCES COUNSEL FOR THE APPLICANT: MR M. DUNCAN INSTRUCTED BY: MESSRS MICHAEL P. CARROLL & PETER S. KNUDSEN COUNSEL FOR THE RESPONDENT: MR M. DEAN INSTRUCTED BY: ALPASS & ASSOCIATES DATE OF HEARING: 11 NOVEMBER 1994 DATE OF JUDGMENT: 18 NOVEMBER 1994