Federal Court of Australia

Li v Huang [2025] FCA 515

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 31A(2)(b) of the Federal Court of Australia Act 1976 (Cth) the proceeding as against the first defendant is dismissed.

2.    The plaintiffs are to pay the first defendant’s costs of his interlocutory application filed on 27 February 2025 and of the proceeding.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MARKOVIC J:

1    This proceeding was commenced on 27 February 2024 by the filing of an originating process and concise statement. Following its commencement the plaintiffs amended their originating process, including by adding additional parties, and filed a statement of claim. Presently the plaintiffs rely on an amended originating process filed on 29 May 2024 and an amended statement of claim filed on 16 December 2024.

2    There are six plaintiffs. They are: Guan Yong Li, Zhongyong Mai, Wenxiao Mai, Mai’s Group Holdings Pty Ltd (MGH), Hongye Investments Pty Ltd and Uniland Australia Pty Ltd. There are four defendants to the proceeding. They are: Zhong Xiao Huang (also known as Michael Huang), On Kwong Fung, Jianfeng Feng and Alex & Ying Pty Ltd.

3    As pleaded in the amended statement of claim:

(1)    the first plaintiff, Guan Yong Li is the sole director and secretary of the sixth plaintiff, Uniland;

(2)    the second plaintiff, Zhongyong Mai, is the “sole owner”, which I understand to mean sole shareholder, of the fourth plaintiff, MGH;

(3)    the third plaintiff, Wenxiao Mai, is the son of the second plaintiff and is the “sole owner” of the fifth plaintiff, Hongye Investments;

(4)    the first defendant, Zhong Xiao Huang, is the former accountant of SOAR Development Group Pty Limited;

(5)    the second defendant, On Kwong Fung, is described as a property developer based in the People’s Republic of China;

(6)    the third defendant, Jianfeng Feng, is the second defendant’s son; and

(7)    the fourth defendant Alex & Ying, is wholly owned and controlled by the third defendant.

4    The proceeding concerns SOAR Development. At all relevant times the directors of SOAR Development were (and remain) the first, second and third plaintiffs and second and third defendants and its current shareholders are the fourth, fifth and sixth plaintiffs and the second and fourth defendants.

5    The proceeding is an oppression suit in relation to the management of SOAR Development (referred to in the amended originating process and amended statement of claim as the Company). Despite it having been commenced in February 2024, the proceeding is at a relatively early stage, having regard to the amendment of the pleadings and, thereafter, because of the issue that has arisen between the plaintiffs and the first defendant.

6    As set out above, the first defendant is the former accountant of SOAR Development. On 27 February 2025 he filed an interlocutory application seeking an order pursuant to s 31A(2)(b) of the Federal Court of Australia Act 1976 (Cth) that the proceeding against him be dismissed and for the plaintiffs to pay his costs of his interlocutory application and the proceeding. At the hearing of the first defendant’s interlocutory application counsel appearing for him informed the Court that the first defendant also relies on r 16.21 of the Federal Court Rules 2011 (Cth). The plaintiffs oppose the first defendant’s interlocutory application. They did not object to the first defendant’s late notified reliance on r 16.21 of the Rules as a basis for the relief sought. The second to fourth defendants did not seek to be heard in relation to the interlocutory application.

The plaintiffs’ case against the first defendant

7    In order to consider whether the relief sought by the first defendant should be granted it is first necessary to set out the relief sought by the plaintiffs in the proceeding and the case pleaded against him.

8    In the amended originating process the plaintiffs seek the following “by way of interlocutory relief” as against the first defendant:

1.    An order pursuant to section 1324(1) of the Corporations Act that the First Defendant be restrained from breaching section 290(1) of the Corporations Act by denying the First, Second and Third Plaintiffs, access to the financial records of the Company.

…

5.    An order pursuant to section 1303 of the Corporations Act and at common law that the First Defendant immediately permit each of the First Plaintiff and his solicitor to inspect and make copies of the financial and other records of the Company.

9    The plaintiffs seek no final relief against the first defendant.

10    In their amended statement of claim the plaintiffs contend:

(1)    at [4] that the first defendant is the former bookkeeper, accountant and tax agent of SOAR Development and holds some or all of its financial records;

(2)    at [10] that at all relevant times until 8 April 2024 SOAR Development had appointed the first defendant bookkeeper, accountant and tax agent and to be responsible for maintaining SOAR Development’s registers and making required lodgements with the Australian Securities and Investments Commission; and

(3)    at [50]-[57] under the heading “refusing to allow the [d]irectors access to the financial records of [SOAR Development]”:

50.    At all relevant times, the [second and third defendants] had, or directed, possession, power and control of all the financial records of [SOAR Development].

51.    [The first defendant] held some or all [SOAR Development’s] financial records at the direction of the [second and third defendants].

52.    In their capacities as directors of [SOAR Development]:

a.    the Plaintiffs are entitled under Section 290(1) of the Act to access the financial records of [SOAR Development] at all reasonable times; and

b.    the Plaintiffs are entitled at general law to unlimited and unfettered access to all records and documents of [SOAR Development] without the need to provide justification.

53.    The Plaintiffs have made multiple demands for production of [SOAR Development’s] financial and other records and documents, but the [second and third defendants] have failed or refused to provide, and have instructed [the first defendant] not to provide, any such access save for the following:

i.    [SOAR Development’s] financial statements and tax returns for the period between 2015 and 2023; and

ii.    some bank statements, limited paid and received invoices and BAS statements.

54.    A resolution of the Board of Directors of 23 November 2023, required the [second and third defendants] to produce all the financial records of [SOAR Development] to the Plaintiffs' solicitors, Luminous Legal ("LL"), within 14 days.

55.    The [second and third defendants] have failed to produce [SOAR Development’s] financial records in accordance with the said Board resolution.

56.    On 8 April 2024, the Board of [SOAR Development] resolved to:

a.    remove [the first defendant] as [SOAR Development’s] accountant and tax agent and appoint Larry Lei of Progressive Accounting & Taxation ("Progressive") in his place;

b.    change the registered office of [SOAR Development] to the offices of Progressive;

c.    direct [the first defendant] to deliver all financial record and other records of [SOAR Development] to Progressive; and

d.    appoint Lauren Cusack of Cusack Forensics as investigative accountant to review [SOAR Development’s] financial records and other documents and, inter alia, report on the financial affairs of [SOAR Development] (the “Resolution of Appointment”).

57.    [The first defendant] was given notice of the resolutions referred to in paragraph 56 but has failed to deliver to Progressive all the financial records and other records of [SOAR Development].

Legislative framework

11    In his interlocutory application the first defendant seeks, in effect, to bring the proceeding against him to an end. In doing so he seeks relief pursuant s 31A(2)(b) Federal Court Act and r 16.21 of the Rules.

12    Section 31A(2)(b) of the Federal Court Act provides that:

The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:

…

(b)    the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.

13    In relation to that section, in Spencer v Commonwealth (2010) 241 CLR 118; [2010] HCA 28 French CJ and Gummow J said at 130-131 [22]:

The section authorises summary disposition of proceedings on a variety of bases under its general rubric. It will apply to the case in which the pleadings disclose no reasonable cause of action and their deficiency is incurable. It will include the case in which there is unanswerable or unanswered evidence of a fact fatal to the pleaded case and any case which might be propounded by permissible amendment. It will include the class of case in the long-standing category of cases which are “frivolous or vexatious or an abuse of process”. The application of s 31A is not, in terms, limited to those categories.

14    Rule 16.21 of the Rules concerns an application to strike out pleadings. It relevantly provides:

(1)    A party may apply to the Court for an order that all or part of a pleading be struck out on the ground that the pleading:

…

(e)    fails to disclose a reasonable cause of action or defence or other case appropriate to the nature of the pleading; or

15    In the amended originating process, the plaintiffs seek two interlocutory orders against the first defendant. The first is an order under s 1324(1) of the Corporations Act 2001 (Cth) and at common law restraining him from breaching s 290(1) of that Act. Section 290(1) is in Pt 2M.2 of Ch 2M of the Corporations Act which concerns financial records.

16    Relevantly, s 286 of the Corporations Act requires a company to “keep written financial records” that “correctly record and explain its transactions and financial position and performance” and “would enable true and fair financial statements to be prepared and audited”.

17    The term “financial records” is defined in s 9 of the Corporations Act in the following way:

financial records includes:

(a)     invoices, receipts, orders for the payment of money, bills of exchange, cheques, promissory notes and vouchers; and

(b)     documents of prime entry; and

(c)     working papers and other documents needed to explain:

(i)     the methods by which financial statements are made up; and

(ii)     adjustments to be made in preparing financial statements. financial records.

18    Section 290 is titled “Director access” and provides:

Director access

(1)     A director of a company, registered scheme, registrable superannuation entity or disclosing entity has a right of access to any financial or sustainability records at all reasonable times.

Court order for inspection on director’s behalf

(2)     On application by a director, the Court may authorise a person to inspect the financial or sustainability records on the director’s behalf.

(3)     A person authorised to inspect records may make copies of the records unless the Court orders otherwise.

(4)     The Court may make any other orders it consider appropriate, including either or both of the following:

(a)     an order limiting the use that a person who inspects the records may make of information obtained during the inspection;

(b)     an order limiting the right of a person who inspects the records to make copies in accordance with subsection (3).

19    Section 1324(1) provides:

1324 Injunctions

(1)    Where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute:

(a)    a contravention of this Act; or

(b)    attempting to contravene this Act; or

(c)    aiding, abetting, counselling or procuring a person to contravene this Act; or

(d)    inducing or attempting to induce, whether by threats, promises or otherwise, a person to contravene this Act; or

(e)    being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this Act; or

(f)    conspiring with others to contravene this Act;

the Court may, on the application of ASIC, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first‑mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing.

20    The plaintiffs seek their second interlocutory order against the first defendant pursuant to s 1303 of the Corporations Act and at common law. That section provides that “[i]f any person in contravention of this Act refuses to permit the inspection of any book or to supply a copy of any book, the Court may by order compel an immediate inspection of the book or order the copy to be supplied”.

Should the proceeding against the first defendant be dismisssed?

21    As set out above, no final relief is sought against the first defendant in the amended originating process or the amended statement of claim. Unsurprisingly, given the nature of the proceeding, the plaintiffs only seek final relief against the remaining defendants, in particular the second and third defendants who are directors of SOAR Development and the second and fourth defendants who are shareholders in SOAR Development.

22    The plaintiffs allege that the second, third and fourth defendants have caused the affairs of SOAR Development to be conducted in a manner that is unfairly prejudicial to them and oppressive within the meaning of s 232 of the Corporations Act. They seek relief against those defendants including an order pursuant to s 233(1)(e) of the Corporations Act that the second, third and fourth defendants purchase all of the plaintiffs’ shares in SOAR Development at a price to be determined by the Court or an independent valuer appointed by the Court and, in the alternative, an order pursuant to s 233(1)(a) and s 461(1)(g) of the Corporations Act that SOAR Development be wound-up.

23    The obvious intent of the interlocutory relief sought against the first defendant is to obtain “financial records” of SOAR Development from him, given he was the company’s former accountant. The plaintiffs allege that, despite the service of a notice to produce on him and subsequent order for production made by the Court, the first defendant remains in possession of financial records of SOAR Development. The first defendant has indicated that he has produced everything in his possession. The plaintiffs say that is a contestable fact.

24    Accepting that is so, the question is whether there is no reasonable prospect of the plaintiffs successfully prosecuting the proceeding as against the first defendant or whether the relevant part of the pleadings should be struck out because it fails to disclose a reasonable cause of action. The first defendant bears the onus of establishing those matters to the satisfaction of the Court: Australian Securities and Investments Commission v Cassimatis (2013) 220 FCR 256; [2013] FCA 641 at 271 [45]; Linden v Sydney Night Patrol & Inquiry Co Pty Ltd trading as SNP Security [2025] FCA 172 at [18].

25    The starting point is the amended originating process and amended statement of claim, the relevant parts of which are summarised at [8]-[10] above. The interlocutory relief sought against the first defendant relies on a breach of s 290 of the Corporations Act. In my view two questions arise. First, is there a pleading of a contravention by the first defendant of that section and, if not, is it fatal. Secondly, can an order which concerns alleged contravention of and, in effect, seeks compliance with s 290 of the Corporations Act be sought against the first defendant.

26    It is appropriate to start with the second question.

27    The plaintiffs submit that relief under s 290 of the Corporations Act is available against an individual and that it would be completely futile if the statutory right of access was given against an artificial legal entity that can do nothing and cannot act other than by its agents. They contend that s 290 does not identify the person against whom the right which it creates is enforceable in terms, that there is no express statutory limitation to that right being enforceable against the company and that it would be futile to read it that way because the company cannot, without human agents, comply with the obligation imposed by the section.

28    The plaintiffs submit that the Court can: pursuant to s 1324(1) of the Corporations Act, restrain the conduct, i.e. failure by the first defendant to give them access to the financial records of SOAR Development in contravention of s 290 of the Corporations Act; and grant relief under s 1303 of the Corporations Act because the first defendant has, in contravention of s 290 of the Corporations Act, refused to permit inspection, or to supply a copy, of any book.

29    As set out above, s 290 of the Corporations Act is in Div 2M which concerns financial records. The obligation to keep financial records is imposed by s 286(1) on the company. Sections 287, 288 and 289 respectively provide for the language, physical format in which and place where financial records may be kept. Those sections, which follow the obligation imposed on a company to maintain financial records, necessarily impose their respective requirements on the company. For completeness I note that s 286A and s 289A concern respectively the preparation of sustainability records by an “entity” and where those records may be kept.

30    Section 290 provides for the right of access by a director to the financial records of a company at all reasonable times. Having regard to the text of s 290 considered in its context, that access is to be given by the company. Put another way, the obligation to provide access is imposed on the company and if the company fails to permit the access contemplated by s 290(1), a cause of action may lie at the suit of the director against the company.

31    The correctness of this interpretation may be tested in two ways. First, s 290(2) permits a director to make an application to the Court to authorise a person to inspect the company’s financial records on his or her behalf. The proper defendant to such an application must be the entity obliged to maintain those records, ie the company. True it is that the financial records may be held by another person, for example the company’s accountant. But only the entity obliged to maintain records can properly consider and respond to such an application and, if the application is granted, give the required access of its records.

32    Secondly, the decided cases reinforce that construction.

33    Huang v PEEQ Global Education Pty Limited, in the matter of PEEQ Global Education Pty Limited [2019] FCA 722 concerned an application by a director of the defendant company, PEEQ, pursuant to s 1324 and s 290 of the Corporations Act to compel PEEQ to provide access to PEEQ’s financial records to him and his two named solicitors. At [17] and [20] Farrell J relevantly said:

17    Mr Huang’s evidence establishes that he has made ongoing requests in 2017 and in December 2018 for access to PEEQ’s financial records. The requests have been made not only to M+K Lawyers, PEEQ’s lawyers, but also by service at PEEQ’s registered office and to the address of Ms Liao, PEEQ’s other director, at the residential address specified in ASIC’s records. It is plain that PEEQ has failed to comply with the statutory obligation imposed by s 290(1) of the Corporations Act even though, as submitted by senior counsel for Mr Huang, at the shareholders’ meeting held on 17 April 2018, it was agreed that access would be provided within seven days, and on 24 April 2018 Mr Liao (through M+K Lawyers) indicated that it would be provided that day or as expeditiously as possible.

…

20    Mr Huang also seeks an order which is, in effect, for continuing compliance by PEEQ with s 290(1). Taken together with the proposed penal notice, that would indicate an intention to take contempt proceedings whenever, in Mr Huang’s view, PEEQ fails to comply with its statutory obligation. The Court is not satisfied that that is appropriate, albeit that that might mean that Mr Huang must approach the Court in the future if PEEQ does not do as the Corporations Act requires. If PEEQ continues to fail to observe s 290, there may be other remedies, such as winding up on the just and equitable ground, which may be more appropriate.

    (Emphasis added.)

34    In Oswal v Burrup Holdings Limited [2011] FCA 609 (unanimously upheld on appeal in Oswal v Burrup Fertilisers Pty Ltd (2013) 295 ALR 708; [2013] FCAFC 9) the applicant, Mr Oswal, among other things, sought access to the respondent’s financial records under s 290 of the Corporations Act. The only respondent and the party against whom the order was sought was the company. That was similarly the case in Arkin v Tridon Australia Pty Ltd [2002] FCA 1629.

35    It follows from the above that, in my view, an allegation of contravention of, and any application for relief requiring compliance with, s 290(1) of the Corporations Act is to be made against the company.

36    By way of interlocutory relief, the plaintiffs seek an order pursuant to s 1324 compelling the first defendant to comply with s 290(1) of the Corporations Act. Given the conclusion I have reached about s 290, it cannot be alleged that the first defendant has engaged in, or is proposing to engage in, conduct that would constitute a breach of s 290 of the Corporations Act. As set out above, that section is not in aid of any duty owed by him to those plaintiffs who are directors.

37    The plaintiffs submit that a company must act through its human agents. That is so. However, the first defendant is not a director of SOAR Development and, accepting for the purposes of this application that he is in possession of financial records of the company, he does not have the power to grant access on behalf of the company.

38    In the alternative, the plaintiffs seek an interlocutory order pursuant to s 1303 of the Corporations Act that the first defendant immediately permit the first plaintiff and his solicitor to inspect the financial and other records of the company. Section 1303 operates where “any person in contravention” of the Corporations Act refuses to permit inspection of any book. It is available to secure compliance with s 290(1) of the Corporations Act: see von Bernstorff v Balamara Resources Limited [2023] FCA 757 at [25]. The plaintiffs rely on a contravention by the first defendant of s 290(1) to enliven an entitlement to relief under s 1303. As I have already concluded s 290 of the Corporations Act does not impose any obligations on the first defendant. Thus, there can be no relevant non-compliance or, put another way, it cannot be said that the first defendant has contravened s 290 of the Corporations Act such that compliance by the first defendant with the obligations in that section can be secured.

39    Although not strictly necessary to do so, I turn to the first question posed at [24] above, do the plaintiffs plead that the first defendant contravened s 290 of the Corporations Act? The amended statement of claim insofar as it pleads a case against the first defendant is summarised at [10] above. While there is an allegation that the first defendant was given notice of the resolution that he deliver all financial and other records of SOAR Development to the newly appointed accountant and that he has failed to do so (at [56]-[57] of the amended statement of claim), there is no allegation included in the amended statement of claim that he thereby contravened and/or continues to contravene s 290 of the Corporations Act. Nor could there be given my conclusion above.

40    I can see no utility in permitting leave to amend the amended originating process and the amended statement of claim in circumstances where SOAR Development is not a party to the proceeding and where counsel for the plaintiffs informed me that to seek an order against SOAR Development would be of little utility given that the first, second and third plaintiffs control the board.

41    Similarly, there is no allegation in the amended statement of claim that SOAR Development has contravened and/or is continuing to contravene s 290 of the Corporations Act and that the first defendant is aiding or abetting or knowingly concerned in that contravention for the purposes of seeking relief under s 1324(1) of the Corporations Act. Nor do the plaintiffs seek relief against the first defendant on the basis of accessorial liability in the amended originating process.

42    It follows from the matters set out above that the claims against the first defendant have no reasonable prospect of success and, as I have found at [40] above, there is no utility in permitting leave to seek to cure that deficiency. The proceeding should be struck out as against the first defendant.

43    While that may seem an unpalatable result for the plaintiffs, they are not left without a remedy in pursuing access to, and production of, the company’s financial records. On their assumption that the first defendant still holds some of those records there are other avenues they can pursue, in particular the issue of a subpoena.

Conclusion

44    As the interlocutory relief sought in orders 1 and 5 of the amended originating process has no reasonable prospects of success, the claim against the first defendant should be summarily dismissed. As they have been unsuccessful the plaintiffs should pay the first defendant’s costs of the interlocutory application.

45    The first defendant also seeks his costs of the proceeding. I have found that, in effect, the proceeding as pleaded cannot be sustained against the first defendant as he does not owe the duty under s 286 and has no obligation under, and is not properly a party to an application for breach of, s 290 of the Corporations Act. The proceeding is at a relatively early stage and the first defendant brought his application for summary dismissal promptly after he appointed lawyers. In those circumstances I am satisfied that the plaintiffs should pay the first defendant’s costs of the proceeding.

46    The first defendant seeks his costs of the interlocutory process and the proceeding on an indemnity basis. He submits that in circumstances where the claim never had any prospects of success, such an order is appropriate, referring to Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397; [1988] FCA 364. In that case Woodward J said at 401:

I believe that it is appropriate to consider awarding “solicitor and client” or “indemnity” costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion.

47    An indemnity costs order may be made where there is “some relevant delinquency on the part of the unsuccessful party”: see Oshlack v Richmond River Council (1998) 193 CLR 72 at [44] (Gaudron and Gummow JJ). As their Honours explained at [44]:

It may be true in a general sense that costs orders are not made to punish an unsuccessful party. However, in the particular circumstance of a case involving some relevant delinquency on the part of the unsuccessful party, an order is made not for party and party costs but for costs on a “solicitor and client” basis or on an indemnity basis. The result is more fully or adequately to compensate the successful party to the disadvantage of what otherwise would have been the position of the unsuccessful party in the absence of such delinquency on its part.

48    I am not persuaded that I should make an order that the plaintiffs pay the first defendant’s costs on an indemnity basis. The particular facts and circumstances do not warrant the making of such an order. The plaintiffs have not been successful in defending the application for summary dismissal but it does not follow that there has been any relevant delinquency, for example that they commenced the proceeding for some ulterior motive or in wilful disregard of established law: see Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 233-234. Rather, I infer that they proceeded against the first defendant based on the advice they received and because they seek to obtain documents required for them to prosecute their claims against the balance of the defendants.

49    I will make orders that the proceeding against the first defendant be summarily dismissed and that the plaintiffs pay the first defendant’s costs of his interlocutory application and the proceeding.

Associate:

Dated:    20 May 2025

SCHEDULE OF PARTIES