Century Insurance (in provisional liquidation) v New Zealand Guardian Trust
[1996] FCA 376
•16 May 1996
CATCHWORDS
PRACTICE AND PROCEDURE - application to set aside order granting leave to serve originating process on respondents out of Australia - whether prima facie case for relief established by party obtaining the order.
Cook Islands International Companies Act 1981 s 89
Evidence Act 1995 s 177
Rules of the Supreme Court 1965 (UK)
Oxford English Dictionary, 2nd ed, (Oxford: Clarendon Press, 1989), Vol XII
Beach Petroleum NL v Johnson (1993) 43 FCR 1
Cell Tech Communications Pty Ltd v Nokia Mobile Phones (UK) Ltd, Unreported (Federal Court of Australia, 20 April 1995)
CSP Computer Security Products Pty Ltd v Security Dynamics Technologies Inc and Megatec Pty Ltd, Unreported (Federal Court of Australia, 12 April 1996)
Merpro Montassa Limited v Conoco Specialty Products Inc (1991) 28 FCR 387
Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd [1983] 1 Ch 258
Royal Brunei Airlines Sdn Bhd v Philip Tan Kok Ming (1995) 3 WLR 64
Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran [1994] 1 AC 438
State of Western Australia v Vetter Trittler Pty Ltd (1991) 30 FCR 102
Trade Practices Commission v Gillette Company (No. 2) (1993) 118 ALR 280
Tycoon Holdings Ltd v Trencor Jetco Inc (1992) 34 FCR 31
Vitkovice Horni A Hutni Tezirstvo v Korner [1951] AC 869
Voth v Manildra Flour Mills Proprietary Limited (1990) 171 CLR 538
CENTURY INSURANCE LIMITED (IN PROVISIONAL LIQUIDATION) and EDWARD JOHN BEBBINGTON AND DELORES EDNA BEBBINGTON v NEW ZEALAND GUARDIAN TRUST LIMITED and NZI INTERNATIONAL TRUSTEE COMPANY LIMITED and DONALD ANDREW DAVIES
NO. WAG 81 OF 1995
LEE J
PERTH
16 MAY 1996
IN THE FEDERAL COURT )
OF AUSTRALIA )
WESTERN AUSTRALIA )
DISTRICT REGISTRY )
GENERAL DIVISION ) NO. WAG 81 OF 1995
B E T W E E N: CENTURY INSURANCE LIMITED
(IN PROVISIONAL LIQUIDATION)
First Applicant
and
EDWARD JOHN BEBBINGTON and
DELORES EDNA BEBBINGTON
Second Applicants
and
NEW ZEALAND GUARDIAN TRUST LIMITED
First Respondent
and
NZI INTERNATIONAL TRUSTEE COMPANY LIMITED
Second Respondent
and
DONALD ANDREW DAVIES
Third Respondent
MINUTE OF ORDER
JUDGE MAKING ORDER: LEE J
DATE OF ORDER: 16 MAY 1996
WHERE MADE: PERTH
THE COURT ORDERS THAT:
The motion of the first and second respondents filed 14 November 1995 be dismissed with costs.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT )
OF AUSTRALIA )
WESTERN AUSTRALIA )
DISTRICT REGISTRY )
GENERAL DIVISION ) NO. WAG 81 OF 1995
B E T W E E N: CENTURY INSURANCE LIMITED
(IN PROVISIONAL LIQUIDATION)
First Applicant
and
EDWARD JOHN BEBBINGTON and
DELORES EDNA BEBBINGTON
Second Applicants
and
NEW ZEALAND GUARDIAN TRUST LIMITED
First Respondent
and
NZI INTERNATIONAL TRUSTEE COMPANY LIMITED
Second Respondent
and
DONALD ANDREW DAVIES
Third Respondent
CORAM: LEE J
DATE : 16 MAY 1996
PLACE: PERTH
REASONS FOR JUDGMENT
This is a motion under O 9 r 7 of the Federal Court Rules ("the Rules") brought by the first respondent ("NZGT") and second respondent ("NZIIT") for an order that service upon them in New Zealand of originating process issued out of this Court by the first applicant ("CIL") and the second applicants ("the Bebbingtons") be set aside.
By a motion heard ex parte, CIL and the Bebbingtons obtained leave to serve NZGT and NZIIT in New Zealand pursuant to O 8 sub-r 2(2) of the Rules. After service was effected NZGT and NZIIT filed a conditional appearance and filed this motion within the time prescribed by O 9 sub-r 7(2).
NZGT and NZIIT have not adduced evidence to contest, in any significant respect, the material placed before the Court on the application for leave but have filed an affidavit which annexes further documents and correspondence exchanged between their solicitors and a party representing the Bebbingtons and other investors.
Although it may be thought that O 9 r 7 in its terms obliges the party bringing the motion to establish a case for the order sought on the motion, I have accepted, for the purposes of this motion, that the onus of establishing the right to continue the proceeding against NZGT and NZIIT continues to rest on CIL and the Bebbingtons by showing that the order granting leave to serve the originating process on NZGT and NZIIT in New Zealand was properly made. (See: Voth v Manildra Flour Mills Proprietary Limited (1990) 171 CLR 538 per Mason CJ, Deane, Dawson, Gaudron JJ at 564.)
I note that in Voth v Manildra Flour Mills it is suggested that ordinarily it will be unnecessary for the Court to express more detailed reasons than those which state
whether a Court has been satisfied by the material presented that an order should or should not be made after taking the opportunity to consider the material presented and the submissions in support. I propose to follow that course as far as possible but the material filed was voluminous and the written submissions were of some length so it is necessary to indicate how I found a path through the maze.
The relevant parts of O 8 rr 1 and 2 of the Rules relied upon are as follows:
"1Subject to rule 2 and Divisions 2 and 3 of this Order, originating process may be served outside the Commonwealth in the following cases -
(a)where the proceeding is founded on a cause of action arising in the Commonwealth;
(aa)where the proceeding is founded on a breach in the Commonwealth of a contract, wherever made, whether or not the breach is preceded or accompanied by a breach, wherever occurring, that renders impossible the performance of any part of the contract which ought to be performed in the Commonwealth;
...
(ac)where the proceeding is founded on a tort committed in the Commonwealth;
(ad)where the proceeding is founded on, or is for the recovery of, damage suffered wholly or partly in the Commonwealth caused by a tortious act or omission, wherever occurring;
...
(af)where the proceeding is for:
(i)the execution of a trust that is governed by the law of the Commonwealth
or of a State or Territory; or
(ii)relief that might be granted in a proceeding for the execution of that trust;
...
(g)where the proceeding is properly brought against a person served or to be served in the Commonwealth and the person to be served outside the Commonwealth is properly joined as a party to the proceeding;
2(2) Where the Court is satisfied of the following matters -
(a)that the proceeding is a proceeding in which the Court has jurisdiction;
(b)that the proceeding is a proceeding to which rule 1 applies; and
(c)that the applicant has a prima facie case for the relief which he seeks,
the Court may, by order, grant leave to serve originating process outside the Commonwealth under this Order."
The expression "a proceeding in which the Court has jurisdiction" in O 8 sub-r 2(2)(a) acknowledges that the Court is not a court of unlimited jurisdiction and requires an applicant for leave to satisfy the Court that it has jurisdiction in the proceeding and, therefore, power to make the order sought. The jurisdiction of the Court is limited to the jurisdiction conferred, or defined, by the Parliament under ss 75-77 of the Constitution. In this case the jurisdiction of the Court relied upon is that conferred by legislation of the States enacted to implement a "system of cross-vesting of jurisdiction" devised by the Commonwealth and the States to invest the exclusive jurisdiction of the Court
in the Supreme Courts of the States and to confer the jurisdiction of the Supreme Courts on the Court. No challenge to the validity of such State legislation was raised in argument.
I am satisfied the Court has such jurisdiction in respect of the matter defined in the amended application and in the amended statement of claim.
The direction in O 8 r 2(b) that the Court be satisfied that the proceeding is one to which O 8 r 1 applies should not be read as a requirement that the applicant prove that issue as at trial and that the Court try the action on a preliminary ex parte application. (See: Vitkovice Horni A Hutni Tezirstvo v Korner [1951] AC 869 per Ld Simonds at 879.) What is required is that it be shown to be clearly arguable on the material presented that the facts of the case, if proven, will be facts to which one of the proceedings listed in O 8 r 1 would apply. The object of O 8 r 1 of the Rules is to set out a catalogue of proceedings likely to be predicated upon facts that would establish the degree of connection between the forum and the person in respect of whom leave is sought to serve the process of the Court necessary to justify the grant of leave to serve that person ex juris. Put another way, the rule regards it as reasonable to assume that in such a proceeding the person to be served pursuant to the grant of leave would anticipate being required to participate in litigation in the Court. However, in exercising the discretion to permit or disallow service of process extraterritorially, notwithstanding that the Court is satisfied that the proceeding is one to which r 1 applies and that a prima facie case for relief has been shown, the Court may consider the connection between the proposed respondent and the Australian forum to be too tenuous to justify the grant of leave.
That is to say, if the material before the Court shows that it is likely that the Court would be regarded as an inappropriate forum for the litigation (Voth v Manildra Flour Mills (1990) 171 CLR 538 at 560-565), the Court could not be persuaded that the proceedings would not be stayed by a subsequent application and would decline to grant leave for the extraterritorial service of its process.
With regard to O 8 sub-r 2(2)(c) the ordinary meaning of the expression "prima facie" is "at first sight; on the face of it; as appears at first sight without investigation" (Oxford English Dictionary, 2nd ed, (Oxford: Clarendon Press, 1989), Vol XII, pp 470-471). The requirement that the Court be satisfied on an ex parte application that the applicant has a "prima facie case for the relief" sought in the proceeding obliges an applicant to show that a case supporting the claim for relief can be found in the material presented with the application, if it is assumed that the facts to be proved by that material will be proved. The sub-rule does not require the Court to conduct an enquiry that trawls through the material and determines the strength of the case or ascertains whether there is a defence that may defeat the case. What the Court must determine is whether the case made out on the material presented shows that a controversy exists between the parties that warrants the use of the Court's processes to resolve it and whether causing a proposed respondent to be involved in litigation in the Court in Australia is justified. If the case for relief is fundamentally deficient on the material presented, leave must be refused because a "prima facie case" will not appear.
I share the opinions expressed by Heerey J in Merpro Montassa Limited v Conoco Specialty Products Inc (1991) 28 FCR 387 at 390; French J in State of Western Australia v Vetter Trittler Pty Ltd (1991) 30 FCR 102; Burchett J in Trade Practices Commission v Gillette Company (No. 2) (1993) 118 ALR 280 at 285-286; Lindgren J in Cell Tech Communications Pty Ltd v Nokia Mobile Phones (UK) Ltd, Unreported (Federal Court of Australia, 20 April 1995); and by Heerey J again in CSP Computer Security Products Pty Ltd v Security Dynamics Technologies Inc and Megatec Pty Ltd, Unreported (Federal Court of Australia, 12 April 1996), (cf. Wilcox J in Tycoon Holdings Ltd v Trencor Jetco Inc (1992) 34 FCR 31 at 36) that the rule is not to be read restrictively subject, of course, to recognition of the important consequences that flow from asserting an enlarged territorial jurisdiction by granting leave to effect service of the process of the Court on a person resident, domiciled or situated outside Australia.
It may be noted that the equivalent provisions in the Rules of the Supreme Court 1965 (UK) (O 11 sub-rr 1(1), 4(2)) which require that it "be made sufficiently to appear to the Court that the case is a proper one for service out of the jurisdiction" have been taken to require an applicant for leave to show "a good arguable case" that the action is one of the actions listed in sub-r 1(1) (the equivalent of O 8 r 1) and that there is a serious issue to be tried in the case to be made on that cause of action. (See: Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran [1994] 1 AC 438 per Ld Goff at 456-457.)
The material filed in support of the application for leave to serve the process in New Zealand either establishes, or is capable of supporting, the following facts if accepted at trial. Any conclusions expressed in these reasons, therefore, are not findings of fact but assumptions required to be made to determine whether the Court can be satisfied that it is clearly arguable that the proceeding is a proceeding to which O 8 r 1 applies and that CIL and the Bebbingtons have a prima facie case for the relief claimed.
CIL was incorporated in the Cook Islands. By order of the Supreme Court of Western Australia it was placed in provisional liquidation on 21 June 1995. On 9 August 1995 the Supreme Court ordered that CIL be wound up and that its order be carried out by a registered liquidator carrying on business in the State of Western Australia.
At material times the Bebbingtons carried on business as farmers at Northam in the State of Western Australia.
In May 1990 the Bebbingtons delivered a cheque in the sum of $440,000 payable to an agent of CIL ("Quenward"). The payment accompanied an "application form" headed "Century Insurance Bond" printed by CIL and distributed in Western Australia by Quenward. In the terms of the "application" the sum paid was a premium for a contract of life assurance. It was also described as an "investment".
Quenward solicited from farmers in the Northam district subscriptions to "CIL Bonds". In soliciting such funds the agent handed to the Bebbingtons, and others, a brochure ("the brochure") prepared by CIL headed:
"Century Insurance Limited
Managed Bonds
IN CONJUNCTION WITH
CMI
CLERICAL MEDICAL
INTERNATIONAL"
The contents of the brochure and of the application form refer to the conflicting concepts of the acquisition of assurance, investment in assets, deposits in mutual funds, and advancement of funds to CIL. The brochure and application variously describe the role of CIL as an insurer, borrower, fund manager and investment adviser.
Introductory paragraphs of the brochure read as follows:
"The Century Insurance Management Funds open up the prospect of investing in the world equity bond and currency markets on terms that are most advantageous to the investor
...
GROWTH AND SECURITY
The Fund is managed by Century Insurance, whose aim is to achieve the maximum capital growth and return on investment through geographically well-placed investments that are consistent with maintaining the security of the Fund.
Century Insurance Limited is incorporated in the Cook Islands as a fully licensed insurance company managed by the European Pacific Trust Company Limited.
The custodian for all documents and paperwork of Century Insurance Limited is the New Zealand Guardian Trust Company Limited of Auckland, New Zealand and it will be responsible as Custodian and Trustee for all funds received.
It will direct those funds under the custody agreement between NZ Guardian Trustees and Century Insurance Limited with Management by the European Pacific Trust Group."
Perhaps surprisingly, a number of the people approached by Quenward completed an "application form" and subscribed funds. Collectively they paid to Quenward on trust for CIL the sum of $2,178,170.94. The whole of those moneys were paid by Quenward to two bank accounts in Sydney in the name of NZGT and NZIIT. NZGT and NZIIT are incorporated in New Zealand and carry on business as trustees. At material times NZIIT has been a wholly owned subsidiary of NZGT. According to the brochure the "Trustee and Custodian", NZGT, had "a branch in Sydney" and "internationally" acted through its subsidiary, NZIIT.
Although the brochure stated that NZGT was the "Custodian and Trustee" in April 1990 NZIIT (as "Custodian") and European Pacific Trust Company (Cook Islands) Limited executed a "Custody Agreement". The clauses of that agreement of particular relevance are as follows:
"1.Custody Account
The Custodian agrees to establish and maintain
(a)a custody account in the name of Century ('Custody Account') for any and all stocks, shares, investment trust units, bonds, debentures, notes, mortgages or other obligations for the payment of money and any certificates, receipts, warrants or other instruments representing rights to receive, purchase or subscribe for the same or evidencing or representing any other rights or interests therein and other similar property, and all or any life or other policies of assurance, or document of title thereto, or units therein or bonds therefor (hereinafter called 'Investments') from time to time received by the Custodian or its subcustodian (as defined in the last sentence of Section 3) for the account of Century and
(b)a deposit account in the name of Century ('Deposit Account') for any and all cash in any currency received by the Custodian or its subcustodian for the account of Century, which cash shall not be subject to withdrawal by draft or cheque.
Century hereby appoints the Custodian as the custodian of its Investments and cash. Century agrees to deliver to the Custodian or its subcustodians all Investments and cash owned by it or held by it as a fiduciary in any capacity for a third party. The Manager agrees to deliver to the Custodian or its subcustodians all investments and cash which it may receive in any capacity on behalf of Century whether owned by Century or to be held by Century as a fiduciary in any capacity for a third party. The Custodian shall not be responsible for any Investments, cash or other assets of Century which are not delivered to the Custodian or to its sub-custodian.
The Custodian shall confirm to the Manager the investment of all sums of money representing the Investments held by Century in any fiduciary capacity for any third party so that following receipt of such confirmation, the Manager may authorise the issue to that party of the appropriate document or evidence of title or rights thereto.
2.Maintenance of Investments Abroad
(a)Investments in the Custody Account shall be held in the country or other jurisdiction as shall be specified from time to time in Instructions, provided that such country or other jurisdiction shall be one in which the principal trading market for such Investments is located or the country or other jurisdiction in which such Investments are to be presented for payment encashment or realisation or are acquired for the Custody Account and
(b)cash in the Deposit Account shall be credited to an account in such amounts and in the country or other jurisdiction as shall be specified from time to time in Instructions (as defined in Section 9 hereof).
...
5.Deposit Accounts Payments
Subject to the provisions of Section 7, the Custodian shall make, or cause its subcustodians to make, payments of cash credited to the Deposit Account only:
(a)in connection with the purchase or acquisition of Investments for Century and the delivery of such Investments to, or the crediting of such Investments to the account of, the Custodian or its subcustodian, each such payment to be made at prices or on such terms as confirmed by Instructions (as defined in Section 9 hereof) from Authorised Persons (as defined in Section 10 hereof);
(b)for the discharge or redemption of fiduciary obligations of Century to any third party and the delivery to, or crediting to the account of, the Custodian or its subcustodian of such documents of title to fiduciary obligations to be so discharged or redeemed;
(c)for the payment for the account of Century of fee income, premiums, dividends, interest, taxes, management, agency or supervisory fees, profit shares, commissions of any nature, capital distributions or operating expenses;
(d)for the payments to be made in connection with the conversion, exchange or surrender of the Investments in the Custody Account;
(e)for other corporate purposes of Century; or
(f)upon the termination of this Custody Agreement as hereinafter set forth.
All payments of cash for a purpose permitted by subsection (a), (b), (c) or (d) of this Section 5 will be made only upon receipt by the Custodian of Instructions from Authorised Persons which shall specify the purpose for which the payment is to be made and the applicable subsection of this Section 5. In the case of any payment to be made for the purpose permitted by subsection (e) of this Section 5, the Custodian must first receive a certified copy of a resolution of the Board of Century adequately describing such payment, declaring such purpose to be a proper corporate purpose, and naming the person or persons to whom such payment is to be made. Any payment pursuant to subsection (f) of this Section 5 shall be made in accordance with Section 20.
In the event that any payment made under this Section exceeds the funds available in the Deposit Account, the Custodian may, in its discretion, advance or arrange for an advance to Century an amount equal to such excess and such advance shall be deemed a loan from the Custodian to Century, payable on demand, bearing interest at the rate of interest customarily charged by the Custodian's bankers on similar loans provided however, that the Custodian shall have no duty to make any payment if such payment will exceed the available funds in the Deposit Account. If the Custodian causes the Deposit Account to be credited on the payable date for interest, dividends redemptions or any other revenue receipt properly creditable, Century will promptly return to the Custodian any such amount or property so credited upon oral or written notification that neither the Custodian nor its subcustodian can collect such amount or property in the ordinary course of business.
The Custodian or its subcustodian as the case may be, shall have no duty or obligation to institute legal proceedings, file a claim or proof of claim in any insolvency proceeding or take any other action with respect to the collection of such amount or property beyond its ordinary collection procedures.
...
9.Instructions
As used in this Agreement, the term 'Instructions' means instructions of Century or any Authorised Person received by the Custodian, via telephone, telex, TWX, facsimile transmission, bank wire or other teleprocess or electronic instruction system acceptable to the Custodian which the Custodian believes in good faith to have been given by Authorised Persons or which are transmitted with proper testing or authentication pursuant to terms and conditions which the Custodian may specify.
Any Instructions delivered to the Custodian by telephone shall promptly thereafter be confirmed in writing by an Authorised Person (which confirmation may bear the facsimile signature of such Person), but Century will hold the Custodian harmless for its failure to send such confirmation in writing, the failure of such confirmation to conform to the telephone instructions received or the Custodiam's (sic) failure to produce such confirmation at any subsequent time. Unless otherwise expressly provided, all Instructions shall continue in full force and effect until cancelled or superseded. If the Custodian requires test arrangements, authentication methods or other security devices to be used with respect to Instructions, any Instructions given by the Custodian thereafter shall be given and processed in accordance with such terms and conditions for the use of such arrangements, methods or devices as the Custodian may put into effect and modify from time to time. Century shall safeguard any testkeys, identification codes or other security devices which the Custodian shall make available to it. The Custodian may electronically record any Instructions given by telephone, and any other telephone discussions, with respect to the Custody Account.
10.Authorised Persons
As used in this Agreement, the term 'Authorised Persons' means such officers or such agents of Century or the Manager as have been designated by or pursuant to a resolution of the Board, in the form annexed hereto a certified copy of which has been provided to Custodian, to act on behalf of Century or the Manager in the performance of any acts which Authorised Persons may do under this Agreement.
Such persons shall continue to be Authorised Persons until such time as the Custodian receives Instructions from Authorised Persons that any such officer or agent is no longer an Authorised Person."
In the main, the moneys disbursed from the NZGT and NZIIT bank accounts in Sydney were used to pay premiums on 25 year term endowment policies issued by "CMI" to persons known to, or associated with, the third respondent ("Davies") and assigned by those persons to CIL. Substantial sums were paid to entities associated with Davies. The whole of the funds collected for CIL and disbursed from the Sydney bank accounts appeared to produce no recoverable asset, or advantage by way of an interest in property, for CIL at the time of disbursement.
In October 1991 the Bebbingtons sought to "redeem" their "CIL Bond" but received no reply from CIL. CIL entered a non-communicative phase from late 1990. The Bebbingtons and other "investors" have suffered a total loss of their "investment".
At material times CIL was not permitted to carry on business in Australia as an insurer but according to the above had purported to do so.
Pursuant to cl 5 of the Custody Agreement the "Custodian" was constrained from making any payments from the "Custody Account" unless for a purpose specified in that clause as set out in instructions from "Authorised Persons". Pursuant to the terms of the Custody Agreement the "Authorised Persons" were those appointed by a resolution of the Board of
Directors of CIL, a certified copy of which resolution had to be provided to the Custodian. The significance of those provisions were described by the General Manager of NZIIT in an internal memorandum prepared in about April 1990, as follows:
"NZIIT or any sub custodian will be entitled to rely on instructions from persons authorised by CUL and will not be required to exercise any discretions."
It appears that NZIIT anticipated appointment as a "Custodian Trustee" by another company associated with CIL, Century Underwriters Limited ("CUL").
In the statement of claim it was pleaded, and for the purpose of the motion to set aside service, it was not contested, that NZGT and NZIIT shared common personnel and the knowledge of one was the knowledge of the other. CIL and the Bebbingtons submit that moneys paid to the account of NZGT were received with knowledge of the direction by the Bebbingtons that the moneys be paid to CIL and with knowledge of the instructions given by CIL in the Custody Agreement that NZIIT receive and deal with the moneys in accordance with the Custody Agreement.
CIL and the Bebbingtons claim, therefore, that the moneys received by NZGT were held in trust by NZGT to be dealt with in accordance with the directions of the Bebbingtons that the moneys be paid to CIL and the further directions of CIL that the moneys be received and dealt with by NZIIT in accordance with the Custody Agreement.
It is pleaded in para 12 of the statement of claim that the Bebbingtons instructed CIL's Quenward to pay "premium moneys" to NZGT. That pleading is not supported in the affidavit of Mr Bebbington nor supported by any other documents or material.
CIL and the Bebbingtons claim that by purporting to deal with the moneys by making payments out of the bank account maintained at Sydney to entities other than NZIIT or CIL, NZGT acted in breach of that trust. On the material set out above the trust would be governed by the law of the Commonwealth or a State (O 8 sub-r 1(af)).
It was conceded that if the trust alleged was a trust in which NZGT was trustee for the Bebbingtons, it could be said that the trust was governed by the law of the State of New South Wales but it was submitted that if the trust relied upon was a trust in which NZGT was trustee for CIL, the law with which the trust was most closely connected was the law of New Zealand, the Custody Agreement being governed by the law
of New Zealand.
But the law with the closest connection with the trust in either circumstance will be the law of the State of New South Wales. The trust arises at the point NZGT interposes itself to be available to receive the funds remitted by CIL's agent with knowledge that the funds are to be put in the custody of NZIIT and dealt with by NZIIT in the terms of the Custody Agreement. Therefore, the trust arises in the State of New South Wales. NZGT makes use of its bank account in New South Wales to deal with the funds and the dealings take place in New South Wales. The breaches of trust occur when NZGT fails to remit the funds to NZIIT, acts that take place in New South Wales.
The fact that the Custody Agreement that establishes a relationship between CIL and NZIIT for NZIIT to receive and deal with the funds is governed by the law of New Zealand or that instructions to NZGT emanated from outside Australia is either irrelevant to the issue to be decided or incapable of outweighing other material which establishes the law governing the trust.
It may be said that NZGT as an intervening volunteer with knowledge of the purpose of the Bebbingtons' payment and of the Custody Agreement between CIL and NZIIT held the moneys on trust for the Bebbingtons as well as CIL until the moneys
were paid to the Custodian, NZIIT. As much was acknowledged by NZGT in a letter sent by its General Manager to a representative of CIL and of Davies dated 5 April 1990 in which NZGT acknowledged that it was a "bare trustee" pending "execution of documents". Although in the amended statement of claim the Bebbingtons do not claim, directly, relief for a breach of trust by NZGT, and for participation in that breach by NZIIT, and have not pleaded, directly, that NZGT held the moneys received from CIL's agent, Quenward, on trust for the Bebbingtons until such time as the moneys were dealt with by NZGT in accordance with the Bebbingtons' directions, para 19 of the amended statement of claim does plead that the payments made by NZGT were contrary to the directions given by the Bebbingtons and others.
It was submitted by counsel for NZGT and NZIIT that the instructions on which NZGT acted emanated from Davies and/or one Gunson, controllers of CIL and, therefore, the acts of Davies and Gunson were the acts of CIL so that CIL could not recover from NZGT loss said to have been occasioned to CIL by NZGT performing acts that CIL had instructed it to carry out.
With respect to the trust described above however, the obligation of NZGT was to deliver the funds to NZIIT in order for the terms of the Custody Agreement, held out to the Bebbingtons and other investors as a document executed for the
protection of the investors' investment, to take effect in respect of the payments made by the Bebbingtons and others and received by NZGT. It could be said that NZGT was not at liberty to act on the instructions of CIL to disburse the funds if to do so would allow CIL to bypass the control of the Custody Agreement. It appears that at all material times neither Gunson nor Davies was or became an "Authorized Person" under the Custody Agreement.
There is ample material to indicate that NZGT acted as instructed by NZIIT, in turn instructed by Davies and Gunson, controllers of CIL. If those facts are established they would not absolve NZGT from a breach of trust and would demonstrate participation by NZIIT in that breach. A claim for relief against NZIIT by CIL based on such participation, (O 8 sub-r 1(af)), appears to be included in the amended application although not spelt out in the body of the amended statement of claim.
It was submitted that NZIIT would only be liable as a third party assisting NZGT to commit a breach of trust if NZIIT acted dishonestly. (See: Royal Brunei Airlines Sdn Bhd v Philip Tan Kok Ming (1995) 3 WLR 64.) Dishonesty in such a context is equated with acting with lack of probity and it means not acting as an honest person would act in the circumstances. It includes acts or omissions that recklessly disregard the rights of others. Although such conduct is to
be characterized according to the actual knowledge held by that person, a matrix of relevant circumstances must also be taken into account in determining whether a person alleged to have acted as an accessory acted dishonestly. It is sufficient to say that on the material presented so far such a claim is arguable.
There is sufficient to show that a case may be made out at trial that NZGT is liable in negligence to CIL (amended statement of claim, paras 1-23) and to the Bebbingtons (amended statement of claim, paras 30-33) for the acts or omissions of NZGT relating to the disbursement of the funds paid into the Sydney bank account of NZGT. A similar claim is made by CIL against NZIIT (amended statement of claim, paras 42-47) in respect of moneys paid into the Sydney bank account of NZIIT. For the purpose of the motion the existence of the relevant duties of care was not put in issue. Based on material submitted, if the alleged torts are established they will be torts committed in the Commonwealth (O 8 sub-r 1(ac)).
With regard to the claim of negligence made by the Bebbingtons the substance of the claim is that NZGT, when in possession of trust property, had been aware of the manner in which CIL obtained investment of those funds and of the import of, and the reasons for, the purported safeguards contained in the Custody Agreement and owed a duty to the Bebbingtons to ensure as far as possible that the moneys were dealt with by
NZGT in a manner consistent with the protection of the interests of the Bebbingtons.
With regard to the claim by CIL against NZGT and NZIIT in negligence, the essence of the claim made against them is that having regard to the reasonably foreseeable risk of fraudulent conduct being undertaken in respect of the funds entrusted to them they took insufficient care to deal with the funds held by them in a manner that would guard against fraudulent conduct by officers of CIL that could cause harm to CIL. I am satisfied that the material presented provides NZGT and NZIIT with a case to answer in respect of the claims for relief based on negligence.
It was submitted that in acting on the instructions of the controllers of CIL NZGT and NZIIT acted as instructed by CIL. But in respect of a claim constructed in negligence as set out above, that submission is not central to the entitlement to relief. The instructions received are only part of the matrix of matters to be considered in determining whether the negligence of NZGT and NZIIT is established and it does not prevent negligence arising. Furthermore, if it becomes an issue at trial whether the knowledge of Davies and/or Gunson is to be imputed to CIL the threshold issues of the fraudulent conduct of Davies and/or Gunson and an absence of benefit to CIL will also arise. (See: Beach Petroleum NL v Johnson (1993) 43 FCR 1 per von Doussa J at 29.) These
matters may indicate that the hearing will concern issues of complexity but the complexity of enquiries to be undertaken does not deny the existence of a case to be answered.
With respect to the claims in tort made by CIL and the Bebbingtons there is sufficient material to suggest that loss was sustained by the Bebbingtons and/or CIL by reason of the negligence alleged, wherever that loss occurred, to make the acts or omissions alleged to have occurred in the Commonwealth actionable torts.
On the hearing of the application for leave to serve NZGT and NZIIT leave was given to CIL to join Davies as third respondent. The material presented in support of the application for leave to serve out of the jurisdiction was sufficient to raise the case that Davies had breached duties owed to CIL as a de facto controller of CIL at material times.
It was submitted by counsel for NZGT and NZIIT that to join Davies as third respondent and to amend the statement of claim to ground a claim that NZIIT and NZGT were participants in the breaches of duty committed by Davies in that they acted on Davies' instructions with the knowledge of the essential facts capable of showing that Davies was engaging in such breaches of duty, was a misuse of the process of the Court in that it involved an ulterior objective, namely, to attract the use of the Court's exorbitant
jurisdiction in respect of NZGT and NZIIT.
It was said that CIL had decided that prosecution of an action against Davies would be a waste of resources and, therefore, to amend the proceedings to join him, and thereby ground a further claim against NZIIT and NZGT as parties to the acts of Davies, was an improper course that should not attract the favourable exercise of the Court's discretion to grant leave to serve its process on NZIIT and NZGT.
On the apparent facts of this case however, it is obvious that on either side of the litigation it will be asserted that Davies is the principal behind all relevant acts and his attachment to the proceeding is inevitable. Any decision CIL may have made to commence proceedings without joining Davies was not a conclusive act and CIL was entitled to apply for permission to add Davies as a respondent and amend its claims to include causes of action against him (O 6 r 8).
Counsel for NZIIT and NZGT relied on Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd [1983] 1 Ch 258 at 268, 284-285 for the submission that leave to serve parties out of the jurisdiction should not be permitted if the party served within the jurisdiction has been joined with the sole or predominant reason of grounding service on parties outside the jurisdiction.
That is not this case. The fact that leave to join Davies as a respondent grounded service upon NZIIT and NZGT under O 8 sub r 1(g) does not demonstrate that the action against Davies is nominal or a matter of convenience. As stated above Davies ought to be joined. The Court may so direct of its own motion (O 6 r 8). If CIL succeeds in its action it is for it to decide whether any judgment obtained against Davies is of value. The right to choose to enforce a judgment against Davies or against NZGT or NZIIT is an advantage of proceeding in this jurisdiction to which CIL is entitled. Leave to serve NZGT and NZIIT out of the jurisdiction is justified on that ground, subject to it being demonstrated that the claim for relief is maintainable.
With regard to the claim of breach of duty by Davies as a de facto director of CIL, it was submitted by counsel for NZGT and NZIIT that the state of the law of the Cook Islands had not been shown with sufficient certainty to conclude that such a breach of duty as that alleged was known under that law.
The affidavit of Mr Manarangi, a barrister and solicitor of the High Court of the Cook Islands, deposes that the duties of directors under the Cook Islands International Companies Act 1981 ("the Act") are set out in s 89 of the Act
and under the common law applied in the Cook Islands. Having regard to s 177 of the Evidence Act 1995 and to the elementary level of evidence required at this stage that statement is sufficient for the purpose of this motion to establish as a fact the law applied in the Cook Islands to directors of companies incorporated in the Cook Islands. It was suggested that amendments to the Act which came into effect on 19 January 1992 substantially lessened the duties of such directors but there was no evidence to contradict that of Mr Manarangi by showing that such amendments took effect retrospectively to apply to the conduct of Davies in 1990 or 1991.
It follows on the material presented that CIL has a case against NZGT and NZIIT as parties to the breaches of duty alleged against Davies (O 8 sub-r 1(g)).
The same material relied upon to support the pleading in negligence against NZIIT by CIL is pleaded as a breach of the Custody Agreement and is said to be a breach of contract committed in Australia (amended statement of claim, paras 18, 48-49). The presence of executive officers of NZIIT in New Zealand at the time NZIIT's personnel in Australia acted in the manner set out in the statement of claim does not constitute the locus of the breach of contract in New Zealand. The acts relied upon as constituting the breach of the Custody Agreement took place in Australia and, therefore, O 8 r 1
applies to that part of the proceeding (O 8 sub-r 1(aa)).
Paragraphs 34-38 inclusive in the statement of claim plead a right of action in the Bebbingtons against NZGT and NZIIT for loss suffered by reason of the participation by NZGT and NZIIT in the breaches by CIL of fiduciary duties owed to the Bebbingtons. That claim appears to be abandoned in the relief claimed in the amended statement of claim and in the amended application and may be disregarded.
On the hearing of the motion it was submitted that CIL and the Bebbingtons had not made full disclosure on their ex parte application of matters material to the grant of leave to serve process out of Australia thereby disentitling CIL and the Bebbingtons to retain the benefit of such an order.
The principal omission was said to be the failure to disclose the terms of the deed of release and indemnity made between CIL and NZIIT on 5 December 1990. The deed was referred to in material presented in support of the application for leave but the contents of the deed were not included in the papers put before the Court.
The copy of the deed was part of the evidence adduced by NZIIT and NZGT in support of their motion to set aside service of the Court's process upon them.
It was submitted that the deed affected CIL's claim in negligence against NZIIT. In its terms the deed falls well short of a release of NZIIT from liability to CIL in negligence or from liability to CIL for participation in breach by Davies of trust or of director's duties. The failure of CIL and the Bebbingtons to include the terms of the deed in the material selected for submission to the Court is not such an omission that would oblige the Court to act to protect the probity and integrity of the Court process by discharging the order obtained by CIL and the Bebbingtons ex parte.
Furthermore, in addition to an obvious argument as to the proper construction of the deed it is apparent on the face of the document, and from other materials, that the binding effect of the deed upon CIL will be an issue at trial.
The submissions of NZGT and NZIIT were directed to the absence of a foundation for the grant of leave to serve process out of Australia under O 8 and there was no evidence directed to the inappropriateness of this forum in comparison with another.
The preponderance of conduct relevant to the litigation has a clear connection with Australia and it is likely that it would be difficult to conclude that this Court was an inappropriate forum.
The Bebbingtons reside in Australia and CIL is being wound up pursuant to an order of the Supreme Court of Western Australia by a liquidator carrying on business in Western Australia. The relevant activities of CIL soliciting funds and offering "insurance bonds" took place in Australia; the bank accounts into which the solicited funds were paid and from which they were disbursed were maintained in Australia by NZGT and NZIIT which also maintained an office and personnel in this country, one of whom was described as "Trust Manager", to receive instructions as to the operation of those bank accounts. In short, NZGT and NZIIT made available the facilities they had in Australia to assist commercial activities of CIL in this country.
Although para 1.4 of the statement of claim pleads that CIL carried on business in Australia, it is not a material element to be proved to establish claims made against NZGT or NZIIT or Davies. As far as the exercise of a discretion to assert an exorbitant jurisdiction is concerned, the relevant question is the connection the acts relied upon as the material facts in the pleaded causes of action have with the forum.
In summary I am satisfied it has been shown by CIL and the Bebbingtons there was a prima facie case that those parties had a claim for relief in the terms set out in the amended application and the amended statement of claim, that
the proceeding is within the jurisdiction of the Court, and that in so far as the proceeding seeks to prosecute claims and gain orders for relief against NZGT and NZIIT that the relevant provisions of O 8 r 1 of the Rules, as indicated, apply to the proceeding.
Having considered the material presented and the written oral submissions made by counsel I am satisfied that the order giving leave to serve the originating process in this matter on NZGT and NZIIT in New Zealand should not be discharged and, therefore, that service of that process on NZGT and NZIIT should not be set aside. Pursuant to the Rules the appearances entered by NZGT and NZIIT become unconditional.
I certify that this and the preceding thirty (30) pages are a true copy of the Reasons for Judgment of his Honour Justice Lee.
Associate:
Date:
APPEARANCES
Counsel for the First
and Second Applicants: D M Stone
Solicitors for the First
and Second Applicants: Williams & Hughes
Counsel for the First, Second
and Third Respondents: E M Corboy
Solicitors for the First, Second
and Third Respondents: Mallesons Stephen Jaques
Date of Hearing : 20 March 1996
Date of Judgment: 16 May 1996
485