Beware foreign investments in your client’s business

By Richard Cowen & Alex NaseTucker & Cowen, Solicitors, Brisbane.

Kadam v MiiResorts Group 1 Pty Ltd (No 5) [2018] FCA 1086

Tucker & Cowen acted for Miiresorts in these proceedings. Our client had received substantial foreign investment from an Indian Group of companies. The investments were substantial – over $100 million Australian dollars. At the time of the investments the Investor – the Indian Pearls group – was apparently reputable. Our client had been introduced to the Pearls Group by the Australian Government Trade Body Austrade, and had the association developed with the assistance of various Australian governments.  Brett Lee, the former Australian Test Cricketer, was one of the “faces” of the Pearls group.

Our client managed the investment (along with other monies) and substantial investments were made in Australian businesses over many years. The “flagship” investment was the Sheraton Mirage Resort on the Gold Coast. That investment was a spectacular success.

Factual background

Two proceedings were commenced in the Federal Court. A class action commenced by Mrs Kadam and others (Janlok Applicants), on behalf of a group of Indian investors known as Janlok, and an action commenced by the Securities and Exchange Board of India (SEBI), (the Indian equivalent of ASIC), on behalf of a larger group of approximately 58 million Indian investors of whom the Janlok Group were a relatively small sub-set. It was alleged that funds were invested by Indian investors in a collective investment scheme operated by PACL (a company in the Pearls Group) in India, and that a portion of such funds were transferred in breach of trust, via various entities, to our client

Initially, SEBI was reluctant to commence proceedings in Australia, which led to the Janlok Applicants commencing the class action, and obtaining by consent, an interlocutory injunction restraining the proceeds of sale of the Sheraton in a solicitors trust account, pending resolution of the dispute.

It was only after such relief had been obtained that SEBI sought to intervene in the class action on behalf of all investors and later, commenced its own action.

The Janlock Applicants, despite representing less than 1% of PACL investors and less than 1% of the funds invested, disputed whether SEBI had a standing to make a claim on behalf of all PACL investors, essentially because (they contended) that on the proper construction of the SEBI Act and Regulations, under Indian law, SEBI did not have the power or standing to bring the action.

The Janlok Applicants and SEBI each obtained their own expert reports from former Chief Justices of the Supreme Court of India reaching different conclusions on this issue.

Referee’s Report

To resolve this aspect of the matter, Lee J ordered the appointment of a referee, the Hon Ian Callinan AC QC, who inquired into the matter, and delivered a report finding that SEBI did have the requisite standing to make the claim.

During the course of the trial, claims to the fund of money held in the solicitors trust account made by Miiresorts and the Commissioner of Taxation settled, and, thereafter, sums of, respectively, $5 million and about $13.7 million were paid to those parties.

Reasons for judgment

On 20 July 2018, Lee J of the Federal Court of Australia delivered judgment the proceedings: Kadam v MiiResorts Group 1 Pty Ltd (No 5) [2018] FCA 1086.

The principal issues determined by Lee J were:

  • whether the balance of the fund held in the solicitors trust account costs of about $63 million, should be distributed to investors in India by way of the scheme administered by the Federal Court in Australia or transferred to India and distributed by SEBI to investors in India in accordance with applicable winding up procedures for PACL in India established by orders of the Supreme Court of India; and
  • The amount that should be paid from the fund to the Janlok applicants on account of their reasonable costs and expenses of securing trust assets for the benefit of all investors, by commencing their proceeding, and obtaining, ultimately by consent, interlocutory relief and seeking to defend applications brought by other parties seeking a release of a portion of the funds.

In relation to the latter issue, Lee J discussed the appropriate juridical basis for making an order for payment of the Janlok applicants’ reasonable costs and expenses of securing trust assets out of the fund, and commented that it is well established that where a party has by that party’s exertions, brought into Court a fund, in the administration of which various parties are interested, the costs and expense of that party should be a first claim on the fund.  However, there were significant concerns in relation to the quantum of costs claimed by the Janlok Applicants, which resulted in His Honour appointing a referee, with legal costing experience, to assess the quantum of those costs, with guidance given as to what heads or categories of costs are properly payable from the fund.


This case illustrates that commercial clients ought beware of the source of all investments, particularly foreign investments, as that may affect the operations of their business in the future.

Contact the author directly by email or by telephone.

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