Kea Investments Ltd v Wikeley (No 2)

In this case, the defendant obtained a default judgment in the courts of Kentucky against the plaintiff in the amount of $123.75 million USD, for breach of a contract styled “Coal Agreement”. In this proceeding, the plaintiff claims that the Coal Agreement was fabricated by the defendant, and some third parties, who conspired to defraud the plaintiff. In April, the plaintiff was granted (on an urgent, ex parte basis), orders preventing the defendant from enforcing the Kentucky judgment or taking any other steps in relation to it. The defendant was also prevented from leaving the jurisdiction. The defendant applied to set those orders aside on grounds including material non-disclosure by the plaintiff during the ex parte hearing, and that Queensland is a clearly inappropriate forum. The court rejected the defendant’s application.

Cooper J

4 October 2023

Background

The defendant, Mr Wikeley, is the sole director and shareholder of Wikeley Family Trust Ltd (“WFTL”), a New Zealand company. [1]. In 2021, WFTL commenced proceedings in Kentucky against the plaintiff for breach of a contract referred to as the “Coal Agreement”. [25]. While the plaintiff was served in respect of the Kentucky proceeding, due to an error by one of its agents, the proceedings were never brought to its attention. [26]. Default judgment was obtained by WFTL for $123.75 million USD on 31 January 2022. [3], [27]. The plaintiff alleged that it first discovered the proceedings when it was served with a statutory demand. [29]. The plaintiff claims that the Coal Agreement is a fraudulent document, invented by the defendant in conspiracy with various third parties, and that the default judgment was therefore procured by fraud. [29].

On 21 July 2022, the plaintiff applied in Kentucky to set aside the default judgment, but the court refused to consider the merits of the plaintiff’s fraud defence. [34]. The plaintiff appealed from that decision on 9 November 2022, but the appeal was stayed for reasons mentioned below. [36]. On 31 October 2022, the plaintiff brought proceedings in New Zealand against WFTL and the defendant alleging a fraudulent conspiracy to obtain the default judgment. [38]. On 4 November 2022, the New Zealand High Court issued an anti-enforcement injunction preventing the defendant from enforcing the default judgment anywhere in the world, and prohibiting him from assigning the judgment or the Coal Agreement. [45].

In early 2023, the plaintiff became aware that the defendant was seeking to assign the default judgment to a company newly incorporated in Kentucky called Wikeley Inc, in breach of the orders made by the New Zealand court. [50]. An assignment was executed on 30 March 2023. [50]. In the Kentucky proceeding, Wikeley Inc applied to be substituted as the plaintiff. [53]. At around the same time, on 6 April 2023, the plaintiff in the current proceeding successfully applied in New Zealand to have interim liquidators appointed to WFTL. [54]–[55]. The liquidation was recognised by the US Bankruptcy Court, with the effect that from around 20 April 2023, the substitution motion, and the appeal against the default judgment in Kentucky have been stayed. [60]–[62].

The defendant is presently a resident of Queensland and as a result, the plaintiff brought applications in Queensland to restrain the defendant’s breaches of the New Zealand orders. On 12 April 2023, the court made orders (amended on 13 April) under ss 25 and 26 Trans-Tasman Proceedings Act 2010 (Cth) (“TTPA”) preventing the defendant from enforcing the default judgment, or taking steps in the Kentucky proceedings, or from leaving the country. [3]. On 20 April 2023, the plaintiff made an application that the defendant be found in contempt of the 13 April orders. [8]. On 21 April 2023, the court extended the orders made on 13 April until 28 days after the conclusion of the New Zealand proceedings. [9]. The Court also issued a warrant for Mr Wikeley’s arrest. [10]. On 26 April 2023, Mr Wikeley appeared, and offered conditions in lieu of his arrest, including a curfew and orders were made in terms of those conditions. [10].

In this application, Mr Wikeley applied to have the 13 April, 21 April and 26 April orders set aside, and to have the contempt application permanently stayed as an abuse of process. [12]. In respect of the 13 April orders, the application was made on the basis of material non-disclosure by the plaintiff during the ex parte hearing for those orders. [13(a)]. In respect of the 21 April orders, the application was made on the basis that Queensland is a clearly inappropriate forum, and the plaintiff’s application must fail on the merits. [13(b)]. If those orders were set aside, the 26 April orders and the contempt application must also fall. [13].

Issue of Onus

Before his Honour considered the merits of the application, it was necessary to address the onus of proof. The defendant was the moving party in the application and on that basis would ordinarily bear the burden of proof. As to the defendant’s contention that there was a material non-disclosure in respect of the 13 April orders, the defendant clearly bore the burden of proof. [73]. The same could be said in respect of the application to stay the contempt proceedings and the application to set aside the 26 April orders, which were made after a contested hearing. [77].

On the other hand, the 21 April orders were made during an inter partes hearing, but without full argument. The orders were made on the basis that they were to remain in place “until further order” and the parties had liberty to apply. [67]. In those circumstances, although, as the moving party the defendant might “in a technical sense” have the onus (see Warringah Shire Council v Industrial Acceptance Corp (NSWSC, McLelland J, 22 November 1979), as a matter of substance, it was for the plaintiff to establish its entitlement to the orders. [74].

Legislative Scheme

Under section 25 of the TTPA, a party to a proceeding in New Zealand may apply to certain Australian courts for interim relief in support of a proceeding in New Zealand. [78]. Section 26 provides three cumulative conditions to the grant of interim relief. [78]. First, the court must consider it appropriate to grant the relief sought. [78]. Second, the court must be satisfied that if a proceeding similar to the New Zealand proceeding had been commenced in Australia, the court would have had power to grant the interim relief sought and third, that in that circumstances the court would have granted that relief. [78].

The Court accepted that where interim relief has already been granted in the New Zealand proceeding, and the court is called on under the TTPA to grant similar relief, the court cannot grant the relief without satisfying itself, on the evidence before it, of the requirements under s 26 of the TTPA. [81]. The Court also noted that the clearly inappropriate forum test does arise for consideration in an application made under the TTPA. [85].

Non-Disclosure

The defendant raised nine categories of issues that he said the plaintiffs had failed to properly disclose before the Court. Most notably, the defendant argued that he had strong defences on the merits including that the plaintiff had taken steps in the Kentucky proceedings inconsistent with the grant of an anti-enforcement injunction, that the causes of action relied on by the plaintiff could not support an anti-enforcement injunction and that it would be a serious breach of comity to grant the injunction. [139].

The Court accepted that these potential defences were not sufficiently brought to the Court’s attention. [115], [140]. However, having regard to the urgency with which the application was brought, the failure to disclose these matters was not material. [116]–[117], [140]. Given that it took the defendant two months to raise those issues, it would be unfair to conclude that the plaintiff unjustifiably failed to raise them during an urgent application. [118]. On that basis the Court rejected the defendant’s non-disclosure arguments and refused to set aside the 13 April orders.

Clearly inappropriate forum

The defendant contended that the 21 April orders, which extended the anti-enforcement injunction, should be set aside because Queensland was a clearly inappropriate forum. The defendant argued that the validity of the default judgment was properly a matter for the Kentucky Court, and as a matter of comity, the question should be left to them. [160]. He also argued that Kentucky law would apply to the plaintiff’s claims of conspiracy, which strongly tells against the Queensland court hearing the matter. [204].

As to the former, the Court noted that there is an exception to the principle of comity where a foreign judgment is said to be procured by fraud. [177]–[188]. Here, the plaintiff had an arguable case that the default judgment was procured by fraud. [192]. The court held that Queensland is not a clearly inappropriate forum in circumstances where the defendant has taken steps to secure the benefit of the default judgment while he has resided in Queensland. [193]–[201]. That factor is sufficient to satisfy the requirement for the court to have personal jurisdiction over the defendant and subject matter jurisdiction over the proceedings. [202]. In addition, the defendant is amenable to the jurisdiction of the court, while he remains in Queensland. The court therefore held that Queensland was not a clearly inappropriate forum. [203], [230].

Should the Injunction remain in place

As to whether there was a serious question to be tried, the defendant argued that a claim of tortious conspiracy could not succeed in circumstances where the judgment gained as a result of the conspiracy still stood. [234]. The Court accepted that proposition of law as correct in general but noted that the facts of this case fell outside the established authorities on the point. [240]. That was because the judgement was in default, rather than after trial, the judgment was obtained in a foreign jurisdiction and the foreign court had, thus far, refused to consider the merits of the fraud allegations. [240]. On that basis, the plaintiff had, at least, an arguable case for maintaining a cause of action for fraudulent conspiracy despite the judgment not having been set aside.

As to the balance of convenience, the court relied on the significant prejudice that the plaintiff would suffer if the judgment was enforced. [263]. In addition, the Court noted that the interim orders in New Zealand already prevented the defendant from taking steps to enforce the default judgment. [268]. On that basis the Court held that the balance of convenience favoured the grant of the injunction remaining in place.

The Court refused the defendant’s application to set aside the 13, 21 and 26 April orders, except in so far as they imposed curfew and residency conditions which conditions were set aside.

L Inglis