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Virgtel Ltd v Zabusky

 

[2011] QSC 269

 

SUPREME COURT OF QUEENSLAND

 

CITATION:

Virgtel Ltd & Anor v Zabusky & Ors [2011] QSC 269

PARTIES:

VIRGTEL LIMITED
(first applicant)
and
VIRGTEL GLOBAL NETWORKS NV
(second applicant)
v
HARVEY ZABUSKY
(first respondent)
and
AMALIA ZABUSKY
(second respondent)
and
EREZ ZABUSKY
(third respondent)
and
COMMSLOGIC PTY LTD (ACN 109 057 543)
(fourth respondent)
and
SOFTQUEST SOLUTIONS PTY LTD (ACN 057 679 599)
(fifth respondent)
and
VIRGIN TECHNOLOGIES LIMITED
(sixth respondent)

FILE NO/S:

BS 6547 of 2005

DIVISION:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court of Queensland

DELIVERED ON:

9 September 2011

DELIVERED AT:

Brisbane 

HEARING DATE:

14 and 15 February 2011

Further written submissions

JUDGE:

Daubney J

ORDER:

1.The parties shall bring in an order providing for the joinder nunc pro tunc as applicants of Viscaya Panama and Viscaya Anguilla, with the costs of the joinder application to be reserved;

2.The respondents’ application for a temporary stay is dismissed with costs.

CATCHWORDS:

PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER UNIFORM CIVIL PROCEDURE RULES AND PREDECESSORS – PARTIES – OTHER MATTERS – where the applicants seek to join two other companies as applicants in the proceeding under rule 69(1)(b) of the Uniform Civil Procedure Rules 1999 (Qld) – whether it is appropriate for the companies to be joined

PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER UNIFORM CIVIL PROCEDURE RULES AND PREDECESSORS – STAYING PROCEEDINGS – where the respondents apply for a temporary stay of proceedings – where the respondents submit that the present proceeding mirrors issues in proceedings in other jurisdictions – whether the Court should exercise its inherent jurisdiction to temporarily stay the proceedings

Corporations Act 2001 (Cth), s 236(3)

Uniform Civil Procedure Rules 1999 (Qld), r 69(1)(b)

Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507, cited

Biala Pty Ltd v Mallina Holdings Ltd (No 4) (1993) 13 WAR 11, cited

Foss v Harbottle (1843) 2 HARE 461; 67 ER 189

OZ-US Film Products Pty Ltd (in liq) v Heath [2000] NSWSC 967, cited

Virgtel Ltd v Zabusky [2006] 2 Qd R 81, considered

Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538, cited

COUNSEL:

G C Newton SC with S S Monks for the applicants

D R Cooper SC with C Wilson for the first, second, third and fifth respondents

SOLICITORS:

James Conomos Lawyers for the applicants

Tucker & Cowen for the first, second, third and fifth respondents

  1. The background to this litigation has been essayed in a number of previous judgments. At its most basic, it is a contest between Mr van Leeuwen and Mr Zabusky.  The van Leeuwen side of the record contends that Mr Zabusky wrongly caused large sums of money which were supposed to have been paid to Virgin Technologies Ltd (“VTL”), a Nigerian company in which Mr van Leeuwen and Mr Zabusky indirectly had interests, to be diverted to the benefit of Mr Zabusky, other members of the Zabusky family and other companies associated with him.
  1. As these proceedings are presently constituted, the applicants are Virgtel Ltd (“Virgtel”) and Virgtel Global Networks NV (“Global”), the first to fifth respondents are the various Zabusky entities, and the sixth respondent is VTL.
  1. In this proceeding, there are presently two applications for disposition:

(a)An application by the van Leeuwen side of the record to join two other companies associated with Mr van Leeuwen as applicants in the proceeding, and

(b)An application by the Zabusky side for a temporary stay of the proceeding.

  1. Before dealing with the merits of those applications, it is appropriate to recall that in 2006, de Jersey CJ granted leave nunc pro tunc to Virgtel and Global to commence and continue this proceeding as a derivative proceeding on behalf of VTL.  In his judgment,[1] the Chief Justice gave the following brief summary of the background facts:

“[1] This proceeding concerns alleged misdealing in the property of the sixth respondent (VTL).  VTL is a Nigerian based company which conducted a business of providing satellite based telephone services in that country.  A secured creditor Afribank Nigeria plc placed VTL into receivership on 8 March 2004.  By December of that year, Afribank’s debt had been fully discharged.  The receivership has not yet however been formally terminated.  (The receiver has yet to render his accounts of the receivership.)

[2] The proceeding is promoted by Mr van Leeuwen, who became involved in VTL in October 2000, at the invitation of the party prominent on the other side of the present ledger, the first respondent Mr Zabusky.  Mr Zabusky lived in Nigeria and was actively involved in the day-to-day management of VTL, although the applicants deny that Mr Zabusky was an employee of that company.

[3] Before the involvement in VTL of Mr van Leeuwen, 85 per cent of the shares in VTL were owned by the first applicant (Virgtel).  Virgtel had three shareholders:  Amalia Investments Ltd, a company associated with Mr Zabusky;  White Owl Ltd, associated with a Mr Gazal;  and BZ Investments Ltd, a company associated with a Mr Shaibu, and latterly, his widow.  In October 2000, Mr van Leeuwen caused his company, Viscaya Armadora SA, to acquire the shares in VTL held by White Owl.  That gave Viscaya a majority holding in, and control of, VTL.

[4] The second applicant (Virgtel Global) was incorporated in August 2001 by Mr van Leeuwen.  Virgtel Global remains under this control.  The applicants contend that Virgtel Global was incorporated in order to act as a general agent for VTL in relation to VTL’s dealings with multinational customers and suppliers.  On the other hand, the respondents say that Virgtel Global was incorporated with a view to becoming the sole shareholder in VTL.  That is said to emerge from a “Protocol of Understanding and Undertaking” dated 20 October 2000 between Amalia and Viscaya.  While accepting that the protocol was agreed upon, Mr van Leuwen’s position is that it was terminated or disbanded because of Mr Zabusky’s alleged failure to secure a transfer of other shares as contemplated by it.

[5] Whatever the ultimate significance of that, disputes about shareholdings in VTL came to a head at VTL’s Annual General Meeting in London in February 2004.  That led to proceedings in the High Court of Nigeria, concerning the shareholdings in VTL, involving those recorded by the Nigerian Corporate Affairs Commission, through its registration of a “form CO2” on 15 November 2000.  That form dated 14 November 2000 was lodged purportedly pursuant to a resolution, but one which the van Leeuwen interests deny was ever passed.  Those proceedings are extant.  (I return later to some detail of them.)

[6] The vast bulk of the affidavit material filed by Mr van Leeuwen and other deponents for the applicants, if accepted, establishes a prima facie circumstantial, and in some respects direct, case in support of the following allegations:

1.that Mr Zabusky used his position as a director of VTL, and through his day-to-day involvement in its management, improperly to divert substantial sums of money from VTL to himself, and to his wife and son (the second and third respondents), and to entities associated with him and them (the fourth and fifth respondents);

2.that Mr Zabusky and his son Erez improperly sold VTL assets and retained the proceeds for themselves;  and

3.that Mr Zabusky and Erez improperly removed and retained computers, information storage devices, information and records belonging to VTL, and brought them to Queensland, where the Zabusky family now resides.

[7] The applicants contend that the misappropriated monies referred to in paras one and two above, found their way into the substantial real estate holdings in the Gold Coast region now owned by Mr and Mrs Zabusky, Erez and their companies;  and into the companies Commslogic (the fourth respondent) and Softquest (the fifth respondent).  The applicants assert an entitlement to declarations of the consequent existence of constructive trusts affecting that property, and invoke a tracing remedy.

[8] The respondents comprehensively deny those various factual allegations.”

  1. The Chief Justice then canvassed the circumstances by which the proceeding had been commenced by way of an application for Mareva and Anton Piller orders against the Zabusky interests, before turning to deal with the application for leave to commence and continue the proceeding as a derivative action on behalf of VTL against the first to fifth respondents. His Honour also dealt with an application by the Zabusky interests for the proceedings to be summarily dismissed or stayed; the Zabusky interests relied on four major grounds in support of that application, namely:

(a)the law of Nigeria precluded this derivative proceeding;

(b)because of the intervening receivership of VTL, the proceeding was incompetent in the absence of the receiver’s consent or the leave of the Nigerian Court;

(c)the proceeding could not succeed factually;

(d)the principle of forum non conveniens.

  1. As to whether the proceeding was factually untenable, the Chief Justice did not consider this basis for the respondents’ application could be sustained, noting that there was “plainly a host of matters warranting determination, as necessary, by way of trial”.[2]
  1. In rejecting the respondents’ argument concerning the lack of receiver’s consent, de Jersey CJ accepted that, notwithstanding the appointment of a receiver pursuant to a debenture, the residual right of a shareholder to commence a derivative proceeding is preserved, provided its pursuit will not jeopardise the charged assets.
  1. As to the argument that Nigerian law precluded the derivative action, the Chief Justice, by reference to significant authority on the point, held that the setting up of the present proceeding involved a procedural, not substantive, question and accordingly the law of Queensland applied.  Additionally, his Honour noted[3] that there “is authority that Australian law will apply to both the substantive and procedural aspects of any proceeding here for fraud, alleging constructive trusts or seeking the remedy of tracing”.  He cited particularly the judgment of Young J in OZ-US Film Products Pty Ltd (in liq) v Heath.[4]
  1. The Chief Justice then turned to consider the factors relevant to granting leave to a shareholder to bring a derivative action. This needed to be adjudged under the common law, not the facultative provisions of the Corporations Act 2001 (Cth) because VTL, Virgtel and Global were all unregistered foreign corporations.  His Honour accepted that there were tenable, substantive claims to be urged on behalf of VTL against the respondents, then turned to consider whether VTL had an effective means of progressing the claims.  He referred to the (then) state of multiplicity of litigation about the identity of VTL’s directors and shareholders, and the existence of certain injunctions in Nigeria at that time, all of which led to a conclusion as to the difficulty, if not impossibility, of convening a meeting of the board of VTL to consider the motions necessary to commence or continue recovery proceedings against the Zabusky parties.
  1. The Chief Justice concluded that if the applicants were not permitted to proceed by way of a derivative action, then it was “unlikely that these apparently not insubstantial claims will ever be ventilated effectively through court proceedings”.[5]
  1. His Honour then dealt with three matters which had been particularly relied on by the Zabusky parties to oppose the application:

(a)that Virgtel was not a shareholder of VTL;

(b)that Global was contravening injunctions issued by the Nigerian Court;

(c)that the subject complaints could be dealt with in Nigeria.

  1. As to the first of these submissions, the Chief Justice noted that the applicants’ contention was that, notwithstanding the Form CO2 registered with the Nigerian Corporate Affairs Commission on 15 November 2000 which recorded Global as a 99 per cent shareholder in VTL, Virgtel had always held an 85 per cent stake in VTL. Alternatively, the applicants relied on Global’s registered 99 per cent interest as giving it standing to bring the proceeding. The Chief Justice rejected a submission that Virgtel’s claim to 85 per cent was “merely equitable”, noting that Virgtel had claimed full legal ownership of that shareholding. He held that Virgtel’s ownership in law of its 85 per cent shareholding in VTL was not affected by registration of the form CO2, saying:[6]

“It is important to note that that was not a registration entered upon the share register of VTL;  it was a ‘registration’ by a statutory Government authority.  (And it is a registration which Virgtel has said misrepresented the true position.)”

  1. The Chief Justice rejected the argument that, in bringing the proceeding, Global was contravening the terms of certain Nigerian injunctions, and also observed:

“[82]Virgtel Global was included as applicant to address a contention – made by the respondents – that because of the “registration” of the CO2 document, Virgtel lacked the standing it could otherwise assert. Because of the relevance of the shareholding issue, it was probably always necessary to have Virgtel Global as a party in this proceeding – as was accepted at the hearing. It is without practical consequence whether it be applicant or respondent: it is an arguably interested and necessary party on whichever side of the proceeding. At an earlier stage in the matter, counsel for the applicants said that Virgtel Global was not an ‘ideal applicant’, and that may be, but it would seem to be a necessary party, and there is in my view no likely adverse practical consequence in now confirming the legitimacy of its presence in the proceeding.” (Underlining added)

  1. The question of the availability of alternative proceedings in Nigeria was dealt with by the Chief Justice under the question of forum non conveniens.  He considered the numerous factors which the parties had submitted made Queensland or Nigeria appropriate (or inappropriate), but concluded that it had not been demonstrated that Queensland was a “clearly inappropriate forum” (applying in that regard the tests stated in Voth v Manildra Flour Mills Pty Ltd).[7]  The Chief Justice held that there was manifest convenience in proceeding in Queensland “and it could not sensibly be suggested doing so would be oppressive or vexatious”.[8]  In respect of the application for leave to bring the proceeding as a derivative action, his Honour referred particularly to what has come to be regarded in the authorities as the “fifth exception” to the rule in Foss v Harbottle.[9]  That rule is to the effect that in proceedings to address a wrong done to a company, it is the company itself, and not any individual member or members, which is the proper plaintiff.  A number of exceptions to that rule have been identified.  In particular, the cases (identified at length by the Chief Justice in the course of his judgment) establish a so-called “fifth exception”, namely that a member or members may bring an action to vindicate the rights of a company where the justice of the case warrant the proceeding.  The Chief Justice held that, in the present case, this exception was “plainly established to the point where it should regulate the outcome of these applications”,[10] and held that it was just to permit the proceeding to go forward.  He also noted that the “fifth exception” was not limited to a situation where the applicant is a minority shareholder.[11]
  1. The Chief Justice therefore ordered, inter alia, that the applicants were entitled to commence, and may continue this proceeding, as a derivative action on behalf of the sixth respondent (VTL) as against the first to fifth respondents.
  1. There was no appeal against this judgment of the Chief Justice, and the proceeding has continued since then as a derivative action brought by the applicants on behalf of VTL.

The joinder application

  1. The van Leeuwen interests have now applied for the joinder as applicants of two other companies associated with Mr van Leeuwen. Each is called Viscaya Armadora SA. One is incorporated in Panama and the other in Anguilla.  For convenience, they are identified as “Viscaya Panama” and “Viscaya Anguilla”.
  1. The application for joinder is made under UCPR r 69(1)(b), which relevantly provides that the Court may order that any of the following be included as a party:

“(i)a person whose presence before the court is necessary to enable the Court to adjudicate effectually and completely on all matters in dispute in the proceeding;

(ii)a person whose presence before the court would be desirable, just and convenient to enable the court to adjudicate effectually and completely on all matters in dispute connected with the proceeding.”

  1. The van Leeuwen interests contend that the joinder of these companies is appropriate because:

(a)Viscaya Anguilla, or alternatively Viscaya Panama, is a shareholder in VTL and is a proper applicant in the derivative action;

(b)the presence of these parties is appropriate for the purpose of resolving the
so-called “retainer issue”.

  1. To say that there is a dispute between the van Leeuwen and the Zabusky interests as to the extent and identity of the shareholders in VTL and Virgtel is somewhat of an understatement. That dispute is now being litigated in numerous courts in several jurisdictions.
  1. At the very least, however, it appears common ground that as at 1 October 2000, the shareholding in VTL was:

Virgtel 85 per cent

Shehu Malami  5 per cent

Ray Wilson Enterprises Ltd  5 per cent

Air Virgo Ltd  5 per cent

  1. At that time, Virgtel’s shares were held as follows:

White Owl Ltd50.0002 per cent

Amalia Investments Ltd39.9998 per cent

BZ Investments Ltd10 per cent

  1. It is to be noted in passing that Amalia Investments Ltd is a company associated with the Zabusky interests.
  1. There is great disputation between the parties as to how shares in these companies were subsequently dealt with, and the terms of those dealings. The following contested positions emerge:

VTL

The van Leeuwen interests say that on 15 August 2002, Viscaya Panama purchased Malami’s interest in VTL. It is conceded that the Zabusky interests, through Amalia Investments, provided 50 per cent of the funds to purchase those shares, and may therefore be entitled to half of the Malami shares.  As a consequence, the shareholding in VTL became:

Virgtel 85 per cent

Viscaya Panama  2.5 per cent

Amalia Investments  2.5 per cent

Ray Wilson Enterprises Ltd  5 per cent

Air Virgo Ltd  5 per cent

In November 2000, a Form CO2 was lodged with the Nigerian Corporate Affairs Commission purporting to record VTL shareholders as:

Virgtel Global 99 per cent

Viscaya Panama  1 per cent

This is the form to which the Chief Justice referred in his judgment.  The court in Nigeria subsequently (and for reasons that do not presently need to be traversed) ordered the Form CO2 be set aside and directed a substitute form be filed.  In 2004, however, other proceedings had been commenced by Amalia Investments in Nigeria seeking, inter alia, declarations for a new share structure for VTL, namely:

Viscaya Panama41.85 per cent

Amalia Investments41.85 per cent

BZ Investments  6.7 per cent

Ray Wilson Enterprises Ltd   5 per cent

Air Virgo   5 per cent

Both sides, therefore, have advanced the proposition that Viscaya Panama was, or was entitled to be, a shareholder in VTL, although the extent of that shareholding is obviously a matter of dispute. 

Virgtel

The identity and extent of the shareholdings in Virgtel is also in issue. The van Leeuwen interests contend that in October 2000, White Owl’s shares in Virgtel were transferred to Viscaya Panama.  The Zabusky interests contend, however, that the single share (which gave White Owl the 0.0002 per cent majority) was held by White Owl on constructive trust for Amalia Investments, and that Viscaya Panama was bound by that same trust.  In 2001, Viscaya Panama purchased 18,000 of BZ Investments’ shares in Virgtel (equal to 3 per cent of the issued capital); the Zabusky interests say that this was a purchase by Viscaya Panama and Amalia Investments jointly. 

In summary, the position with the shareholding of Virgtel, depending on whose case is accepted, is that Virgtel’s shares were held as follows:

Viscaya Panama – on the Zabusky case, 50 per cent, increasing to 51.5 per cent after purchase of the BZ Investment shares;  on the van Leeuwen case, 53.002 per cent, after purchase of the BZ Investments shares

Amalia Investments – on the Zabusky case, 40 per cent increasing to 41.5 per cent after purchase of the BZ Investment shares

BZ Investments – 10 per cent, reduced after sale to 7 per cent

Global

  1. For completeness, I will note that Global was incorporated in the Netherlands in August 2001.  All of its issued capital was held by Mrs van Leeuwen (since deceased.  Its current directors are associates of Mr van Leeuwen.  It is a van Leeuwen entity. The Zabusky interests contend, however, that Global was supposed to have been established as an “umbrella” entity through which the van Leeuwen interests and the Zabusky interest would hold their interests in VTL, but the van Leeuwen interest wrongfully presumed that Global was effectively owned by the late Mrs van Leeuwen.

The two Viscaya companies

  1. From 1998, Mr van Leeuwen held a power of attorney to act generally on behalf of Viscaya Panama, a company in which he held all of the issued capital.  He alleges that in 2009, Mr Zabusky caused the Panamanian law firm which acted as Viscaya Panama’s registered agent in that country to cease acting for Mr van Leeuwen so far as Virgtel was concerned.  It is unnecessary for present purposes to descend into the detail of that dispute.  It is sufficient to note that Mr van Leeuwen says that, as a consequence, he retained another firm in Anguilla (British West Indies) and on 7 August 2009 Viscaya Anguilla was incorporated.  The van Leeuwen interests contend that Viscaya Panama’s shares in Virgtel were transferred to Viscaya Anguilla on that same day.  I note in passing that the Zabusky interests assert that such a transfer was prohibited by Virgtel’s constitution and that the shares in Virgtel are still owned by Viscaya Panama.  The van Leeuwen interests also contend that Viscaya Panama’s five per cent interest in VTL was transferred to Viscaya Anguilla on 10 August 2009. 

Should Viscaya Panama and Viscaya Anguilla be joined?

  1. I have given only the barest summary of the competing contentions on the identity and extent of the shareholdings in VTL and Virgtel because, as the matter was argued before me, the fact of these competing contentions was not in issue.
  1. The applicants contend that Viscaya Anguilla, or at the very least, Viscaya Panama, is on any view of the matter a shareholder in VTL and is therefore a proper applicant in this derivative action. 
  1. The applicants’ further reason for joining these parties is by reason of the Zabusky interests having raised the question of the ability of the van Leeuwen interests to bring the present proceedings in the name of Virgtel and Global. It is necessary to explain a little more about that issue.
  1. In April 2009, some three years after the Chief Justice gave leave nunc pro tunc for Virgtel and Global to bring these derivative proceedings, counsel for the Zabusky interests asserted for the first time in the course of a review hearing that Virgtel and Global had never had authority to retain solicitors to bring and prosecute this action.  Directions were made to enable the respondents to pursue that argument fully, but that application was never brought on.  It is, however, a point that is expressly pleaded on behalf of the respondents in defence to the present proceeding.  As a consequence, the respondents have put in issue in this proceeding the question as to who had authority to act on behalf of Virgtel and Global.  This will require determination of who was, or was entitled to be, directors of those companies, whether those persons had authority to instruct solicitors on behalf of those companies, and will also require determination of the identity and interests of the companies’ shareholders and which of those have the power to control the composition of the boards of the companies.  At least so far as Virgtel is concerned, it is apparent from the summary of the disputed shareholding positions set out above that the extent of the shareholding of Viscaya Panama is a matter of dispute between the parties, as is the question whether the shares were transferred from Viscaya Panama to Viscaya Anguilla or whether such a transfer was prohibited.
  1. In my opinion, each of these points weighs considerably in favour of the joinder of each of Viscaya Panama and Viscaya Anguilla as applicants – whichever one of those companies is held to be a member of VTL is clearly an appropriate party to join in pursuit of the derivative action on behalf of VTL, and in any event I consider it desirable, just and convenient to have those parties before the Court for the purposes of determining the retainer issue.
  1. The respondents, however, raised a number of issues which they argued ought persuade me not to exercise the discretion to permit the joinder of Viscaya Panama and Viscaya Anguilla.
  1. First, the respondents argued that this derivative action had never been properly constituted and pleaded. The bases for this argument were that the plaintiff in a derivative action can only sue if the company itself can sue, and that a derivative action against directors who are alleged to be guilty of a breach of their fiduciary duties to the company can only be prosecuted by a member if the directors control the company in general meeting or are otherwise able to prevent the company suing in its own name.
  1. This argument, however, founders on the fact that this action has for years now been constituted as a derivative action pursuant to the orders made by the Chief Justice in 2006 and for the reasons articulated at length by the Chief Justice in his judgment. That judgment has never been challenged by the respondents. If the Zabusky parties contended that the Chief Justice erred in that decision, the appropriate avenue of challenge was to appeal that judgment rather than seeking to unwind the history of this proceeding at this stage.
  1. Secondly, it was submitted that the joinder of Viscaya Panama and Viscaya Anguilla ought be refused because the applicable limitation periods have expired.  Significant argument was addressed to making good the proposition that the proper law of the claims against Mr Zabusky for breach of fiduciary duty is the law of Nigeria, and that the Nigerian limitation provisions ought be given effect.  It was argued that the limitation period in Nigeria for claims for breach of fiduciary obligations is six years.
  1. This argument is, however, misconceived because it ignores the fact that the causes of action pursued in this proceeding are VTL’s, and have always been pleaded on behalf of VTL.
  1. Thirdly, it was argued that orders joining Viscaya Panama and Viscaya Anguilla should not be made because neither has standing.  It was argued that because each of those entities is a foreign company, neither of which carries on business in Australia, the provisions of s 236(3) of the Corporations Act abolishing the right of a person at general law to bring proceedings on behalf of a “company” do not apply to these two entities insofar as they seek to bring proceedings in this Court on behalf of VTL.  This very point was identified by the Chief Justice in relation to Virgtel and Global, as a consequence of which, as I have already noted, his Honour applied the common law tests relating to derivative actions.  The same tests apply in relation to the proposed joinder of Viscaya Panama and Viscaya Anguilla. 
  1. Next, the respondents sought to argue that neither Viscaya Panama nor Viscaya Anguilla was a necessary or proper party under Nigerian law. In this regard, counsel for the respondents sought to argue that the question whether a derivative action is available is a question of substantive law, governed by the law of Nigeria where VTL is incorporated, and that I should not follow the judgment of the Chief Justice.  Whatever the merits of the arguments advanced by the respondents might be, the judgment of the Chief Justice stands and governs the constitution and disposition of this proceeding.  The respondents, as I have already noted several times, did not appeal against the judgment of the Chief Justice.  There is no proper basis for me now to go behind that judgment and revisit arguments which were dealt with by the Chief Justice in 2006.
  1. The respondents further argued that even if Queensland law applies, then neither Viscaya Panama nor Viscaya Anguilla are necessary or proper parties.  Significant argument was focused in this regard on whether the evidence establishes conclusively whether Viscaya Panama or Viscaya Anguilla are shareholders of VTL under the law of Nigeria.  This argument is, to some degree, illusory.  I have already summarised above the competing positions advanced by the parties in various extant pieces of litigation as to the identity and extent of the shareholdings in VTL.  There is, in fact, no issue between the parties that Viscaya Panama has a claim in law to be recognised as a shareholder of VTL.  The extent of that shareholding is to be determined by the courts.  It is also for the courts to determine whether Viscaya Anguilla has a sustainable claim at law to be recognised as a shareholder in VTL by reason of the transfer to it of Viscaya Panama’s shares in VTL.  The Chief Justice determined in 2006 that this was an appropriate case under the “fifth exception” to the rule in Foss v Harbottle for a derivative action to be brought and prosecuted on behalf of VTL.  The joinder of Viscaya Panama and Viscaya Anguilla in their claimed capacities as members (or lawfully entitled to be members) of VTL does not in any way derogate from that decision of the Chief Justice.  In any event, I have already expressed the view that it is desirable for Viscaya Panama and Viscaya Anguilla to be joined in the proceeding for the purpose of resolving the “retainer issue” which has been raised in the proceeding by the respondent.
  1. The respondents argued faintly that the order should be refused because the merits of the case after joinder were wanting. That assessment clearly cannot be made on an interlocutory application such as this, particularly in light of the fact that proceedings involving the issues on which the respondents assert the applicants have little merit are the subject of proceedings in other jurisdictions.
  1. The respondents also contended that the applicants have not explained the delay in making the application to join Viscaya Panama and Viscaya Anguilla.  In fact, the explanation is apparent on the material, and can clearly be sheeted home to being in significant part, at least, a response to the respondents raising the “retainer issue”. 
  1. This is not a case, as was argued at some length before me by counsel for the respondents, where the parties are sought to be joined in their capacity as shareholders of a shareholder of VTL. Rather, as I have sought to make clear above, Viscaya Panama and Viscaya Anguilla claim alternatively for an entitlement at law to a shareholding in VTL, the company for whose benefit the derivative action is brought.

Conclusion on the joinder application

  1. The respondents have not persuaded me that I should not exercise the discretion conferred by r 69(1) for the joinder of Viscaya Panama and Viscaya Anguilla.  On the contrary, I am quite satisfied that it is appropriate for those parties to be joined.  The joinder of each of those companies as applicants should, however, be subject to the following conditions, namely:

(a)that each of Viscaya Panama and Viscaya Anguilla is bound by the previous orders made in this proceeding for the giving of security for costs;

(b)that each of Viscaya Panama and Viscaya Anguilla is liable in respect of costs orders that have already been made against the existing applicants in this proceeding or which may be made in the future in relation to orders previously made reserving costs;  and

(c)the provision of an undertaking as to damages that relates back to the commencement of the proceedings.

  1. Subject to the parties bringing in a form of order which incorporates these conditions, there will be an order for the joinder nunc pro tunc of each of Viscaya Panama and Viscaya Anguilla as applicants in the proceeding.

The respondents’ application for a stay

  1. The Zabusky interests applied for a temporary stay of this proceeding, fundamentally on the basis that the present proceeding mirrors issues which are being ventilated in proceedings being conducted in other jurisdictions.
  1. The pending foreign proceedings are:

(a)A suit in the Nigerian Federal High Court by Amalia Investment and Mr Zabusky against Global, Viscaya Panama, BZ, VTL and the Nigerian Corporate Affairs Commission.  This is the proceeding to which I referred above by which the Zabusky interests seek, relevantly, declarations as to the shareholdings in VTL;

(b)Proceedings by Viscaya Anguilla and PMP Anguilla Ltd against Virgtel and Mr Zabusky in the High Court of the Eastern Caribbean Supreme Court of the British Virgin Islands.  This suit concerns the ownership and control of shares in Virgtel;

(c)A further suit in the High Court of the Eastern Caribbean Supreme Court of the British Virgin Islands by Amalia Investment and Mr Zabusky against Virgtel, Viscaya Anguilla, Viscaya Panama, Mr van Leeuwen, PMP, BZ and White Owl.

  1. For the purposes of the present application, the Zabusky interests relied particularly on the pendency of the proceedings in Nigeria, the outcome of which is supposed to settle the identity of the shareholders of VTL and the extent of their respective shareholdings.  Counsel for the Zabusky interests submitted:

“7.The fundamental reason why the Queensland proceedings must be stayed is obvious.  Once the true shareholdings in VTL are established in Nigeria, the conduct of the affairs of VTL will, relevantly, revert to the shareholders in general meeting. 

  1. A general meeting may ratify director’s acts despite an abuse of power, and any resulting transaction may be validated and the directors are absolved from liability to the company whether for breach of contract or fiduciary duty.
  1. In other words, VTL will be able to sue in its own name for the wrongs alleged in the Queensland proceedings if it so desires because neither the Respondents nor the van Leeuwen interests will control the company in general meeting due to the existence of other shareholders.  A majority decision is achievable in that context.  Once VTL is able to pursue all claims in its own name in Nigeria, the other international proceedings necessarily become otiose.”
  1. These submissions do not, however, fully state the applicable law. In particular, it omits reference to the well accepted qualification to the capacity of shareholders to ratify or excuse directors’ breaches of duty, namely that shareholders cannot sanction improper expropriation of a company’s property by the directors.[12]  This is precisely the claim which is sought to be advanced on behalf of VTL in the present proceeding, namely a claim that Mr Zabusky unlawfully caused the misappropriation of the property of VTL, or at the very least perpetrated a fraud on the minority.
  1. It is also not to the point that there are proceedings pending in other jurisdictions which are concerned with determining the identity and extent of the shareholdings of the various companies with which the parties have been associated. The proceeding in this Court is the only proceeding in which the claim of misappropriation is sought to be ventilated on behalf of VTL. The claims made in this case in this Court are simply not part of any of the proceedings pending before other courts.
  1. Significant argument was addressed to the timetabling of proceedings in this Court and the potential chronology of the proceeding being prosecuted before the Court in Nigeria.  It is unnecessary to elaborate any further on those points because, as I have already said, the matter which is the subject of the present proceeding in this Court is not a matter in issue before the Court in Nigeria.
  1. An alternative ground relied on by the Zabusky interests to seek a temporary stay was that the Queensland proceedings are “doomed to failure”.  This assertion was founded on a submission that VTL does not own the cause of action that is litigated by the applicants derivatively, and the applicants cannot be in a better position than the company.  The argument raised by the Zabusky interests in support of this contention turns on whether the choses of action on which the present proceedings are based fell within the ambit of a fixed and floating debenture dated 7 January 2002 granted by VTL in favour of Afribank Nigeria Plc, pursuant to which receivers were subsequently appointed to VTL.  It is argued that on 30 August 2004, the receiver entered into a contract to sell VTL’s “Assets” to another company, VGC Communications Ltd, and that the assets sold included the causes of action which are now pursued in the present proceeding.
  1. This argument, if established at trial, may well constitute a defence to the claims brought on behalf of VTL. The arguments do not, however, provide a basis for even a “temporary stay” as is sought by the Zabusky interests. The arguments sought to be raised in this regard are factually complex, and are not apt to be determined on a summary basis on an interlocutory application such as this.
  1. A further alternative advanced on behalf of the Zabusky interests relied again on the assertion that the present proceedings were improperly constituted as a derivative action. As discussed above in the context of the joinder application, this argument is arid in view of the unchallenged judgment of de Jersey CJ in 2006.
  1. The Zabusky interests have, in my view, not demonstrated any proper ground for the Court to exercise its inherent jurisdiction to temporarily stay the present proceedings. The application for a stay should therefore be dismissed with costs.

Conclusion

  1. Accordingly, there will be the following orders:
  1. The parties shall bring in an order providing for the joinder nunc pro tunc as applicants of Viscaya Panama and Viscaya Anguilla, with the costs of the joinder application to be reserved;
  1. The respondents’ application for a temporary stay is dismissed with costs.

Footnotes

[1] Virgtel Ltd v Zabusky [2006] 2 Qd R 81.

[2] At [17].

[3] At [62]

[4] [2000] NSWSC 967.

[5] At [75].

[6] At [79].

[7] (1990) 171 CLR 538.

[8] At [105].

[9] (1843) 2 HARE 461; 67 ER 189.

[10] At [89].

[11] At [91]. See also Biala Pty Ltd v Mallina Holdings Ltd (No 4) (1993) 13 WAR 11.

[12] Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507 per Gleeson CJ and Heydon J at [24].

Close

Editorial Notes

  • Published Case Name:

    Virgtel Ltd & Anor v Zabusky & Ors

  • Shortened Case Name:

    Virgtel Ltd v Zabusky

  • MNC:

    [2011] QSC 269

  • Court:

    QSC

  • Judge(s):

    Daubney J

  • Date:

    09 Sep 2011

Litigation History

Event Citation or File Date Notes
Primary Judgment [2011] QSC 269 09 Sep 2011 Daubney J.
Appeal Determined (QCA) [2012] QCA 107 [2013] 1 Qd R 285 20 Apr 2012 Appeal dismissed: Holmes and Chesterman JJA, and P Lyons J.

Appeal Status

{solid} Appeal Determined (QCA)