FEDERAL COURT OF AUSTRALIA Rabsnead Pty Ltd v Schmierer [2002] FCA 304 PRACTICE AND PROCEDURE – cross-vesting – Corporations Act proceedings commenced in Federal Court by contributory for removal of administrators of corporation – related professional negligence claim by that contributor against administrators currently pursued in Queensland Supreme Court – whether 'appropriate' and 'in the interests of justice' to cross-vest proceedings in Federal Court to Queensland Supreme Court for purposes inter alia of consolidation with Queensland Supreme Court proceedings. Corporations Act 2001 (Cth) ss 445F, 491, 1337H Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) s 5(4)(b) The Bell Group Limited v Westpac Banking Corporation (2000) 104 FCR 305 referred to Re Wakim; Ex parte McNally (1999) 198 CLR 73 referred to J N Taylor Finance Pty Ltd (in liq) v BCF (Bond Corporation Finance) Ltd (1991) 4 ASCR 483 considered Bourke v State Bank of New South Wales (1998) 85 ALR 61 considered Johnson Tiles Pty Ltd v Esso Australia Ltd [2001] FCA 421 followed RABSNEAD PTY LTD v TREVOR JOHN SCHMIERER AND DENNIS JOHN OFFERMANS N 3005 OF 2002 CONTI J 20 MARCH 2002 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 3005 OF 2002 IN THE MATTER OF SEAFOOD ONLINE.COM LIMITED (FORMERLY SUBJECT TO DEED OF ARRANGEMENT) (NOW IN VOLUNTARY LIQUIDATION) BETWEEN: RABSNEAD PTY LTD (ACN 010 315 983) APPLICANT AND: TREVOR JOHN SCHMIERER FIRST RESPONDENT DENNIS JOHN OFFERMANS SECOND RESPONDENT JUDGE: CONTI J DATE OF ORDER: 6 MARCH 2002 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Pursuant to section 1337H of the Corporations Act 2001, or alternatively, section 5(4)(b) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth), the matters to be determined in the subject proceedings in this Court numbered N 3005 of 2002 be transferred to the Supreme Court of Queensland (Brisbane Registry). 2. That the costs of the proceedings thus far in this Court be costs in the cause to be continued in the Supreme Court of Queensland. Note: 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 N 3005 OF 2002 IN THE MATTER OF SEAFOOD ONLINE.COM LIMITED (FORMERLY SUBJECT TO DEED OF ARRANGEMENT) (NOW IN VOLUNTARY LIQUIDATION) BETWEEN: RABSNEAD PTY LTD (ACN 010 315 983) APPLICANT AND: TREVOR JOHN SCHMIERER FIRST RESPONDENT DENNIS JOHN OFFERMANS SECOND RESPONDENT JUDGE: CONTI J DATE: 20 MARCH 2002 PLACE: SYDNEY REASONS FOR JUDGMENT Background to the proceedings 1 Seafood Online.Com Limited ("Seafood Online") entered into a Deed of Company Arrangement on 24 April 2001, whereof the Respondents were at all material times joint and several Administrators. The Applicant Rabsnead Pty Ltd ("Rabsnead") is a contributory and creditor who had been dissatisfied with the administration of the affairs of Seafood Online, and sought the removal of the Respondents. 2 Orders were first made in these proceedings by Hely J on 14 February 2002 to the effect that an application should be filed by Rabsnead and made returnable before a Corporations Panel Judge on 1 March 2002, and further that Rabsnead file and serve a statement of claim in respect of the proceedings on or before 22 February 2002, and if intending to seek interlocutory relief, that Rabsnead file a notice of motion on or before 22 February 2002 to be returnable on 1 March 2002 at 2:15pm. 3 The notice of motion made returnable before me sought orders to the effect, first, that the Respondents be removed as administrators under the Deed of Company Arrangement and that Hugh Sutcliffe Martin be appointed in their place, and further that the Respondents be restrained from submitting a motion to creditors of Seafood Online that the company be wound up. At the time of issue of the processes in question, it appears that a meeting of creditors had been convened to consider whether to extend the operation of the Deed of Company Arrangement, in the absence of which it was said that the voluntary winding up procedures of s 491 of the Corporations Act 2001 ("the Act") would take effect. 4 On reading the affidavit material filed in the motion, it became apparent that the complexity of the issues were such that the grant of interlocutory relief was not a course which could be conceivably implemented on that occasion, and that the cost of a full hearing of what would be inherently complex proceedings could well be prohibitively expensive to the parties. After preliminary discourse and debate between the parties extending over nearly two hours before me, I adjourned the hearing of the motion until 6 March 2002, with the recommendation that the parties explore an appropriate means of expeditiously and conveniently resolving the substantive issues underpinning the existing litigation, including the possible appointment of representatives of Rabsnead to the Committee of Inspection. I was informed however that in the event that the creditors did not resolve on the same day to extend the operation of the Deed of Company Arrangement, Seafood Online would enter voluntary liquidation pursuant to s 491 of the Act. 5 I was further informed that currently on foot in the Queensland Supreme Court were proceedings commenced by Rabsnead against the Respondents for damages for professional negligence and misrepresentation arising out of their conduct of the insolvent administration of Seafood Online, being proceedings which necessarily raised directly or indirectly issues in common with the subject proceedings. 6 The background to the disputes involving the parties was the successful public capital raising by Seafood Online of approximately $14 million, pursuant to the issue of a prospectus in February 2000, and the subsequent financial collapse of Seafood Online, following upon the expenditure of approximately $13 million of its funds on what became an incomplete aquaculture facility located approximately 40 kilometres north of Bowen in the State of Queensland. 7 On 22 February 2001, the Respondent Mr Schmierer was appointed voluntary administrator of Seafood Online by resolution of its directors. Subsequently on 1 March 2001, Mr Schmierer resigned and was reappointed jointly with Mr Offermans. 8 Rabsnead has alleged that what largely contributed to the financial collapse of Seafood Online were cost overruns in favour of certain creditors (called by Rabsnead the "Friendly Creditors" because of an alleged wrongfully close association with the Administrators), whose representatives had been appointed to a Committee of Inspection, yet in breach of their duties as Administrators had sold significant assets of Seafood Online to certain of the Friendly Creditors, and had done so at an undervalue, notwithstanding the provisions of s 551 of the Act. Rabsnead claimed to represent the interests of the remaining creditors, which have been referred to in the proceedings as the "Non-Friendly Creditors", and which allege wrongful over-charging of Seafood Online in connection with the installation of the aquaculture facility. 9 Rabsnead further complained that a request made on its behalf for the calling of a meeting of creditors pursuant to s 445F of the Act had been refused by the Respondents, and that there had been a wrongful denial of the claims of certain Non-Friendly Creditors. 10 At the conclusion of the hearing of the proceedings in the afternoon of 1 March 2002, I adjourned the same for further hearing on the afternoon of 6 March 2002, this time by video conference in order to avoid the cost and inconvenience of the Respondents and their legal representatives returning to Sydney. In the meantime, the parties were encouraged to continue dialogue for the resolution of the disputes, which focused essentially upon issues between the Friendly Creditors and Non-Friendly Creditors, and the request of the latter to have representation on the Committee of Inspection. Resolution of the issues between Rabsnead and the Joint Administrators was foreshadowed upon the possible basis of agreeing upon some appropriate mechanism to determine the disputes between the Non-Friendly Creditors, informally represented before me by Rabsnead, and the Friendly Creditors. 11 Late in the day of 1 March 2002, I was informed that the meeting convened to consider an extension of the voluntary administration had failed to reach an appropriate consensus, thereby resulting automatically in the winding up of Seafood Online and the appointment of the Joint Administrators as liquidators. 12 On the resumption of the proceedings on 6 March 2002, constructive dialogue occurred before me between the respective legal representatives of the parties with a view to resolving the appropriate forum for resolution of the disputes between the Friendly Creditors and the Non-Friendly Creditors. Factors pointing overwhelmingly in favour of the Supreme Court of Queensland as the appropriate forum were the geographical location of the insolvent administration of Seafood Online, the places of business of the majority of creditors and former directors and administrators, the places of residence of the potential witnesses to the litigious disputes, and the location of the unfinished aquaculture centre which was at the heart of the dispute. Indeed even the former director William Matthew Schoch, whose company Schochco Pty Limited holds 19.61% of the issue capital of Seafood Online, who is personally owed $126,695.00 pursuant to an admitted proof of debt, and who has financially supported Rabsnead in its legal complaints, resides in Brisbane. I acknowledge assistance in that regard from the principled approaches of Debelle J in J N Taylor Finance Pty Ltd (in liq) v BCF (Bond Corporation Finance) Ltd (1991) 4 ACSR 483 at 491-492, and Wilcox J earlier in Bourke v State Bank of New South Wales (1988) 85 ALR 61 at 77. 13 Following upon the discussions between the legal representatives of the parties appearing before me on 6 March 2002, it became ultimately apparent to all parties that the outcome of the current proceedings should be resolved in the Queensland Supreme Court, and most probably in conjunction with the proceedings already set in train in that Court at the instance of Rabsnead against the Respondents for professional negligence and misrepresentation. Indeed the present proceedings in this Court need to be re-constituted, so that the nub of Rabsnead's complaints, namely the conduct of the Friendly Creditors in relation to construction of the aquaculture centre, and the costs charged therefor, should be resolved on behalf of Seafood Online for the benefit of its outstanding creditors and shareholders generally, and not merely Rabsnead. At the conclusion of the second afternoon's hearing, I therefore made orders, with the ultimate concurrence of all parties, that the proceedings before me be cross vested to the Queensland Supreme Court, so that the appropriate re-constitution thereof along the lines above stated may take place in that Court, possibly in conjunction with the existing proceedings for professional negligence and misrepresentations. In so doing, I would refer to the decision in this Court by Carr J in The Bell Group Limited v Westpac Banking Corporation (2000) 173 ALR 427 to the effect that notwithstanding some of the findings of the High Court in Re Wakin; Ex parte McNally (1999) 198 CLR 73, s 5(4)(b) of the Jurisdiction of Courts (Cross-Vesting Act) 1987 (Cth) would continue to apply to proceedings within the jurisdiction of the Federal Court, such as to enable the transfer of those proceedings to a State Supreme Court. 14 I should record that the legal representatives for both parties who appeared before me were constructive and positive as to seeking out of an appropriate means of resolving the viability or otherwise of Rabsnead's grievances. Rabsnead's central complaint concerns, as I have foreshadowed, the conduct of the Friendly Creditors in and about the construction and installation of the aquaculture centre, and the alleged excessive quantification of their building costs, being a complaint which Rabsnead would seek to ventilate on behalf of the general body of creditors and contributories as a whole. Whilst Rabsnead and the Respondents (now constituted as liquidators) are presently litigious opponents, it was made clear to me on behalf of the Respondents that they were concerned to fulfil their obligations to the creditors and contributories generally in an appropriately even-handed and expeditious manner, and at the least cost. 15 I therefore confirm having made orders on 6 March 2002 to the following effect, which I hereby record and confirm, upon the footing that the proceedings concern civil matters arising under the Act and/or are appropriate to be determined in the Supreme Court of Queensland: (i) That pursuant to section 1337H of the Corporations Act 2001, or alternatively, section 5(4)(b) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth), the matters to be determined in the subject proceedings in this Court numbered N 3005 of 2002 be transferred to the Supreme Court of Queensland (Brisbane Registry); (ii) That the costs of the proceedings thus far in this Court be costs in the cause to be continued in the Supreme Court of Queensland. The costs order is in conformity with that made by Merkel J of this Court in Johnson Tiles Pty Ltd v Esso Petroleum Limited [2001] FCA 421. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti. Associate: Dated: 20 March 2002 Counsel for the Applicant: No appearance Solicitor for the Applicant: Prider & Co Lawyers Counsel for the Respondent: Mark Gynther Solicitor for the Respondent: Jones King Lawyers Date of Hearing: 1 March 2002 and 6 March 2002 Date of Judgment: 20 March 2002