Bywater – High Court of Australia finds that the place of directors’ meetings is given little weight in determining corporate residence if they are not the true decision makers

The High Court of Australia has found that various non-Australian companies, which made money trading on the Australian stock exchange, were resident in Australia, on the basis of having their central management and control there, notwithstanding that all the board meetings were held outside Australia and the directors were mostly residents of Switzerland. The key point was that they did not exercise any independent judgment with respect to any decisions to be taken by the companies, so that all such decisions essentially were made by the Australian-resident individual, who was the companies’ ultimate beneficial owner, from his office in Sydney. The Court stated:

Ordinarily…it will be found that a company is resident where the meetings of its board are conducted. But… it does not follow that the result should be the same where a board of directors abrogates its decision-making power in favour of an outsider and operates as a puppet or cypher, effectively doing no more than noting and implementing decisions made by the outsider as if they were in truth decisions of the board.

In addition to various Australian and British decisions, the Court referred to Fundy Settlement with approval, and also referenced Hertz, where the U.S. Supreme Court:

held that, in determining whether a corporation is a "citizen" for federal jurisdictional purposes, the statutory criterion of "principal place of business" is …"best read as referring to the place where [the] corporation's officers direct, control, and coordinate the corporation's activities. It is the place that Courts of Appeals have called the corporation's 'nerve center' … and not simply an office where the corporation holds its board meetings… .”

Neal Armstrong. Summary of Bywater Investments Ltd. v Commissioner of Taxation; Hua Wang Bank Berhad v Commissioner of Taxation [2016] HCA 45 under s. 2(1).