C2C Investments Pty Ltd, in the matter of C2C Investments Pty Ltd v Leigh (No. 3)

[2012] FCA 680

FEDERAL COURT OF AUSTRALIA

C2C Investments Pty Ltd, in the matter of C2C Investments Pty Ltd v Leigh (No 3) [2012] FCA 680

Citation:		C2C Investments Pty Ltd, in the matter of C2C Investments Pty Ltd v Leigh (No 3) [2012] FCA 680
Parties:		C2C INVESTMENTS PTY LTD (ACN 102 331 840) and GEOFFREY ANTHONY SHANNON v DAVID JOHN LEIGH TRADING AS PPB (NORTHERN NSW) (A FIRM) and REGISTRAR GENERAL OF NEW SOUTH WALES
File number:		NSD 454 of 2010
Judge:		YATES J
Date of judgment:		29 June 2012
Catchwords:		PRACTICE AND PROCEDURE – application under rr 6.01 and 29.03 of the Federal Court Rules 2011 to strike out paragraphs of affidavit – whether paragraphs contain matter that is scandalous, irrelevant or otherwise oppressive
Legislation:		Evidence Act 1995 (Cth) Federal Court Rules 2011 rr 6.01, 29.03
Cases cited:		C2C Investments Pty Ltd, in the matter of C2C Investments Pty Ltd v Leigh (No 2) [2011] FCA 501 Kowalski v Mitsubishi Motors Australia Ltd [2009] FCA 1289 Millington v Loring (1880) 6 QBD 190 Shannon v Smith (1914) 1 SR (NSW) 253 Wu v Avin Operations Pty Ltd (No 2) [2006] FCA 792
Date of hearing:	12 March 2012
Place:	Sydney
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	40
Counsel for the Plaintiffs:	Mr MS Jacobs QC
Solicitor for the Plaintiffs:	GWM Lawyers
Counsel for the Defendants:	Mr P Walsh
Solicitor for the Defendants:	Church & Grace

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 454 of 2010

BETWEEN:

C2C INVESTMENTS PTY LTD (ACN 102 331 840)
First Plaintiff

GEOFFREY ANTHONY SHANNON
Second Plaintiff

AND:

DAVID JOHN LEIGH TRADING AS PPB (NORTHERN NSW) (A FIRM)
First Defendant

REGISTRAR GENERAL OF NEW SOUTH WALES
Second Defendant

JUDGE:	YATES J
DATE OF ORDER:	29 JUNE 2012
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The parties are to provide within seven days an agreed form of orders giving effect to these reasons.

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 454 of 2010

BETWEEN:

C2C INVESTMENTS PTY LTD (ACN 102 331 840)
First Plaintiff

GEOFFREY ANTHONY SHANNON
Second Plaintiff

AND:

DAVID JOHN LEIGH TRADING AS PPB (NORTHERN NSW) (A FIRM)
First Defendant

REGISTRAR GENERAL OF NEW SOUTH WALES
Second Defendant

JUDGE:	YATES J
DATE:	29 JUNE 2012
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. The plaintiffs move to strike out various paragraphs of the affidavit of the first defendant, David John Leigh, sworn on 13 December 2011. The plaintiffs submit that these paragraphs contain matter that is scandalous or otherwise irrelevant and oppressive.  The first defendant resists the application.

2. The first defendant was the voluntary administrator of the first plaintiff and of other companies in the C2C group of companies.  The second plaintiff is the sole director of the first plaintiff.  In the principal proceeding the plaintiffs claim that, after his appointment as administrator of the first plaintiff had been terminated, the first defendant wrongfully executed a mortgage over the first plaintiff’s property called the Kelman Estate and caused it to be registered in his favour.  The proceeding is more fully described in C2C Investments Pty Ltd, in the matter of C2C Investments Pty Ltd v Leigh (No 2) [2011] FCA 501.

   General matters

3. Rule 6.01 of the Federal Court Rules 2011 provides:

   If a document filed in a proceeding contains matter that is scandalous, vexatious or oppressive, a party may apply to the Court for an order that:
   (a)       the document be removed from the Court file; or
   (b)      the matter be struck out of the document.

4. Rule 29.03, dealing specifically with the content of affidavits, provides:

   (1)     An affidavit must not:
             (a)       contain any scandalous material; or
             (b)       contain any frivolous or vexatious material; or
             (c)       be evasive or ambiguous; or
             (d)       otherwise be an abuse of the process of the Court.

   (2)If an affidavit contains any of the material mentioned in subrule (1), a party may apply to the Court for an order that the affidavit, or a part of the affidavit, be removed from the Court file.

5. As a matter of general approach, it does not follow from the fact that scandalous matter has been stated in a document or affidavit filed in the Court that the matter is “scandalous” within the meaning of these rules.  The question is really whether the scandalous matter, so stated, is extraneous to the issues raised in the proceeding on which evidence could properly be brought forward:  Millington v Loring (1880) 6 QBD 190 at 195; 196-197. If the scandalous matter is extraneous, then, generally speaking, it should be struck out: see, for example, Wu v Avin Operations Pty Ltd (No 2) [2006] FCA 792; Kowalski v Mitsubishi Motors Australia Ltd [2009] FCA 1289. This is but an example of the Court remedying an abuse of its process. However, if the matter is relevant to the issues in the proceeding, such that evidence of it could properly be given, it would not normally be struck out under these rules. In short, the statement of a scandalous matter in a filed document or affidavit will not be struck out simply because it is scandalous.

6. Whether a matter can be characterised as scandalous depends on whether it would be perceived to be such according to generally recognised and accepted community standards at the time of the application.  The assessment is an objective one.  It does not rest simply on the idiosyncratic perceptions of the person challenging the statement of the matter in the document or affidavit.  Still less is a matter scandalous because the person objecting to it disagrees with its content.

7. A matter will be “oppressive” within the meaning of these rules if it would tend to prejudice, embarrass or delay the fair trial of an action or cause an abuse of the Court’s process.  It has been said that where a party has introduced irrelevant material, the Court may refuse to strike out responding material on the ground that it is “oppressive”:  Shannon v Smith (1914) 1 SR (NSW) 253.

8. In the present case the first defendant submits that much of the material in his affidavit (about which the plaintiffs complain) has been made in response to the second plaintiff’s affidavit sworn in November 2010 (the plaintiffs’ first affidavit).  He submits that the plaintiffs have also replied, by way of affidavit made by the second plaintiff on 25 January 2012 (the plaintiffs’ second affidavit), to a number of paragraphs that they seek to strike out.  He submits that, in respect of these paragraphs, the challenged material could not be oppressive in any practical sense.

9. In this connection the plaintiffs have pointed out that their first affidavit pre-dates the filing of their fourth amended statement of claim.  They have indicated that some parts of this affidavit will not be read at trial, but they have not been specific in this regard. 

10. In my view the plaintiffs cannot support their present application by relying on a post‑hoc analysis of the first defendant’s affidavit which depends for its validity on the plaintiffs impugning their own affidavit material to which the first defendant has found it necessary to respond in the defence of his own interests.  Whether at trial certain responding paragraphs of the first defendant’s affidavit will retain their apparent relevance is a matter that will be affected, no doubt, by the forensic decisions to be made by the plaintiffs as to how, at that time, they will seek to deploy their first affidavit.  I will not seek to anticipate those decisions when deciding this application.

11. With those general matters in mind, I turn to consider various groupings of paragraphs in the first defendant’s affidavit to which specific submissions have been addressed by the parties.

    Paragraphs 4.2 to 4.18

12. The first defendant has stated that he will not seek to read a part of paragraph 4.14 of his affidavit which records a conversation he says he had with the second plaintiff prior to his appointment as administrator of the first plaintiff.  The first defendant otherwise resists the plaintiffs’ application with respect to the paragraphs in this group.

13. The first defendant submits that these paragraphs provide evidence of the background to his dealings with the plaintiffs.  He submits that this evidence supports the contention that the C2C group of companies was hopelessly insolvent at the time of his appointment as administrator and that, once the first plaintiff was taken out of administration, the remaining companies did not have the means to fund a pooled deed of company arrangement which, he says, had been the expectation prior to 3 October 2008. 

14. The first defendant submits that at trial he will contend that, against this background, he required, and the second plaintiff agreed on behalf of the first plaintiff to grant, the mortgage the subject of this proceeding.  I should add that these paragraphs introduce the Kelman Estate in the first defendant’s narrative of the events leading up to his appointment as administrator, as well as the fact that it was necessary for the first defendant to pay stamp duty on the transfer and other completion expenses in order for the Kelman Estate to be transferred to the first plaintiff.

15. The first defendant also submits that these paragraphs respond to paragraphs 2 to 6 of the plaintiffs’ first affidavit and are, in turn, responded to by paragraphs 5.1 to 5.17 of the plaintiffs’ second affidavit.

16. It is true that the plaintiffs have responded to these challenged paragraphs, although in some cases the response is a mere denial or a statement that the paragraph is irrelevant to any issue in the proceeding.  In other cases the plaintiffs’ second affidavit engages with the first defendant’s intended evidence in more detail, including in some cases by way of specific admission. 

17. I do not propose to strike out these paragraphs. In my view they do not contain matter that is scandalous or oppressive. Having said that, I doubt that some of the material is of much probative value. For example, some of the conversations recorded by the first defendant (see paragraphs 4.3, 4.5, 4.6, 4.7, 4.8, 4.11 and 4.12) do not seem to advance materially the narrative of the events that the first defendant has recorded. Nevertheless, I would not be prepared to find at the present time that, if read at trial, the asserted facts in these paragraphs would not pass the threshold of s 55 of the Evidence Act 1995 (Cth) (the Evidence Act). There may be a real question whether the probative value of such evidence is substantially outweighed by the danger that it may cause or result in undue waste of time or would otherwise be liable to rejection on discretionary grounds under s 135 of the Evidence Act. That is not, however, a ruling I am prepared to make at the present time. It is sufficient for me to indicate that, as presently advised, some of the conversational material in these paragraphs appears to me to be of marginal relevance.

    Paragraphs 4.19 to 4.20

18. These paragraphs provide evidence of the first defendant’s appointment as administrator of companies in the C2C group.  The paragraphs respond to paragraphs 4.2 to 4.3.2 of the plaintiffs’ first affidavit and are admitted in paragraphs 5.18 to 5.19 of the plaintiffs’ second affidavit.  I do not propose to strike out these paragraphs.  They do not contain material that is scandalous, irrelevant or oppressive. 

    Paragraphs 5.1 to 5.14

19. These paragraphs deal with the first defendants’ proposed appointment as administrator of 33 Electra Pty Limited (33 Electra).  The plaintiffs submit that these paragraphs are completely irrelevant.  Put simply, they say that this case does not concern 33 Electra.

20. I agree that the pleaded case does not concern 33 Electra.  However, these paragraphs respond to paragraphs 8.1 to 9.3.2 of the plaintiffs’ first affidavit and are, in turn, responded to by paragraph 6 of the plaintiffs’ second affidavit.  It has not been explained to me why the plaintiffs have sought to introduce the position of 33 Electra in their first affidavit.  In light of the submissions they have made in this application they may choose not to read at trial paragraphs 8.1 to 9.3.2 of their first affidavit.  However, as I have said, I will not anticipate decisions of that kind when deciding this application.

21. In these circumstances I do not propose to strike out the challenged paragraphs.  In any event, they do not contain material that is either scandalous or oppressive.   

    Paragraphs 6.1 to 6.6

22. The first defendant submits that these paragraphs give an apparently uncontroversial (and I would add, general) account of what he did after his appointment as administrator.  These paragraphs include a number of documents including minutes of creditors’ meetings and reports to creditors and ASIC, as well as the mortgage the subject of this proceeding. 

23. The first defendant submits that these paragraphs are relevant because they show work which he did as administrator and for which he is entitled to charge fees and expenses.  In this connection the plaintiffs plead that the first defendant’s claims for fees for his work as an administrator, and for which the mortgage was apparently put in place by him, were excessive and that his remuneration should be determined by the Court:  see paragraph 15 of the fourth amended statement of claim and s 449E(1)(c) of the Corporations Act 2001 (Cth) (the Corporations Act). In my view these paragraphs appear to be relevant to that issue and thus should not be struck out for that reason alone. They certainly do not contain material that is, in that connection, scandalous or oppressive.

24. The first defendant also submits that these paragraphs are relevant because they will support a submission that, with the removal of the first plaintiff and the Kelman Estate from administration, there was no means available to pay the first defendant’s fees and expenses or to pay creditors of the C2C group of companies unless he was granted a mortgage over the Kelman Estate to secure these payments.  In this connection there are other paragraphs in the first defendant’s affidavit to which no objection is taken (see paragraphs 8.5(g) and (k)) which refer to a discussion between the second plaintiff and the first defendant on 3 November 2008 concerning the need for the first plaintiff’s properties to form part of a pooled deed of company arrangement.  The first defendant says that at trial he will submit that, from the outset, it was proposed by the second plaintiff and himself that the Kelman Estate would provide the source of funds to pay group creditors and the first defendant’s fees and expenses.  However the decision to take the first plaintiff out of administration required the granting of a mortgage over the Kelman Estate to secure these amounts.

25. The text of the challenged paragraphs does not seem to address these matters in terms.  It is possible, however, that Mr Leigh will seek to draw support from the reports to creditors (see DJL-25 and DJL-29) or his s 438D report lodged with ASIC on 14 November 2008 (see DJL-26) that are identified in the challenged paragraphs:  see, in particular, paragraph 6.1.  If so, it is not clear to me how those reports prove those matters, although they may contain material that is relevant in that regard.  The plaintiffs submit that, if that be the case, it is not for them “to plough their way through this mound of documents” to determine what parts of the reports or other documents are relied upon by the first defendant. 

26. In my view there is some justification to the plaintiffs’ complaint.  However, their concerns can be addressed by a direction to the first defendant to identify for the plaintiffs what part or parts of the reports he relies on and the issue to which such part or parts go, beyond simply standing as some evidence of the work performed by the first defendant for which he says he is entitled to charge fees and expenses.  The plaintiffs can then decide whether and to what extent they need to rely on any responding material.

27. The plaintiffs also submit that the first defendant’s report to ASIC (DJL-26) is matter which is scandalous.  I do not agree.

28. For these reasons I do not propose to strike out these challenged paragraphs.

    Paragraphs 6.7 to 6.19

29. These paragraphs deal with further work done by the first defendant in the course of his administration.  He submits that these paragraphs are relevant, at a general level, because, once again, they stand as some evidence of the work which he did as administrator and for which he is entitled to charge fees and expenses. In my view these paragraphs appear to be relevant to that issue and thus should not be struck out.  They do not contain material that is, in that connection, scandalous or oppressive.

30. The first defendant also submits that paragraphs 6.7, 6.10 and 6.12 to 6.15 deal with his investigations, the making of his report to ASIC pursuant to s 438D of the Corporations Act (dealing with misconduct) and his observation of a change in the second plaintiff’s attitude and his co-operation in relation to the administration. He submits that these particular paragraphs will provide evidence that is relevant to the events prior to 3 October 2008 and the second plaintiff’s decision to take the first plaintiff (and thus the C2C group’s only asset – the Kelman Estate) out of administration. He submits that that decision in turn explains why it was that he sought, and was granted, a mortgage over the Kelman Estate.

31. In my view these paragraphs do not contain matter that is scandalous or oppressive. The second plaintiff may well disagree with the first defendant’s opinions and conclusions underpinning his report to ASIC. That disagreement does not make the first defendant’s proposed evidence about the making of this report, or his reason for making it, either scandalous or oppressive. Moreover, I do not understand the first defendant to be contending that he proposes to read these paragraphs to prove that the second plaintiff has engaged in conduct that does contravene the Corporations Act. Rather he proposes to read these paragraphs to show that a report to ASIC was made and that that fact affected his relationship with the second plaintiff and influenced the course of events leading to the first plaintiff being taken out of administration and the mortgage of the Kelman Estate being granted. If need be, these paragraphs can be read subject to a limitation under s 136 of the Evidence Act as to their use. Any such ruling can be made at trial. I am not persuaded that they contain matter that is so lacking in relevance that they should be struck out. I am not satisfied that these paragraphs contain matter that is oppressive in the circumstances.

32. Paragraph 6.8 of the affidavit deals with the first defendant’s belief that the second plaintiff had sought, as a matter of business practice, to have assets of the C2C group held by an entity separate from other entities in the group that incurred liabilities.  The first defendant says that he believed that some of the first plaintiff’s assets may have been acquired through work undertaken by another company within the group.  He submits that his belief in that regard goes to explain his view about the appropriateness of a “pooled” deed of company arrangement and, when that was no longer possible with the termination of the first plaintiff’s administration, why he sought a mortgage over the Kelman Estate.  He has made clear that he does not seek to prove the truth of that belief, only the fact that he held it as a reason for seeking a mortgage over the Kelman Estate to pay group creditors and his fees and expenses.

1. I do not propose to strike out this paragraph.  In my view it is relevant to the issues in the proceeding and does not contain matter that is either scandalous or oppressive. 

2. Paragraph 6.11 concerns a meeting between the second plaintiff and the first defendant (referred to as the “whiteboard meeting”).  The first defendant submits that these paragraphs will be read to found a submission that it was always contemplated by the plaintiffs that the Kelman Estate would provide funds for the deed of company arrangement to pay group creditors and the first defendant’s fees and expenses, and to explain why it was that the plaintiffs were willing to grant a mortgage over the Kelman Estate as a condition of the first plaintiff being allowed out of administration.

3. I do not propose to strike out this paragraph.  The matters stated in this paragraph are supported by other paragraphs of the affidavit to which no objection is taken.  There is nothing in the paragraph that is scandalous or oppressive. 

   Paragraphs 6.20 to 6.24

4. These paragraphs deal with what occurred following an adjourned second meeting of creditors held on 4 December 2008, as well as a conversation between the plaintiffs’ solicitor and the first defendant.

5. Paragraphs 6.20, 6.21 and 6.23 are uncontroversial.  The matters stated in them have been responded to by the plaintiffs and admitted. 

6. Paragraphs 6.22 and 6.24 have also been responded to.  In my view there is nothing in any of these paragraphs that is scandalous or oppressive.  I am not persuaded that they contain matter that is lacking in relevance.  For these reasons I do not propose to strike them out.

   Disposition

7. In my view the plaintiffs’ application to strike out the identified paragraphs in the first defendant’s affidavit should be dismissed.  I will, however, direct that the first defendant give notification to the plaintiffs of those parts of the reports identified in paragraph 6.1 of his affidavit that he proposes to rely on for purposes other than showing the nature of the work carried out by him in the course of his administration.  The first defendant is to identify the issue or issues to which those parts relate.

8. The parties are to provide within seven days an agreed form of orders giving effect to these reasons.  If there is any disagreement about costs then I will hear the parties on that question.

I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.

Associate:

Dated:       29 June 2012