Chapman, Russell Burley v Gooch Ware Travelstead
[1998] FCA 1024
•25 AUGUST 1998
FEDERAL COURT OF AUSTRALIA
PRACTICE AND PROCEDURE – abuse of process – application claiming against US resident – in respect of Australian transactions and conduct – under Australian law – respondent invokes protection of US bankruptcy laws – Chapter 11 Reorganization Plan – applicant does not claim under US bankruptcy laws – claim denied by respondent – whether Federal Court inappropriate forum for claim – impact of claim for relief as distinct from enforcement of relief – extension of time and leave to appeal – service out of jurisdiction – ruling dismissing motion to set aside service – motion for leave to appeal out of time – principles – whether leave should be granted – leave refused.
Trade Practices Act 1974 (Cth) s 51A
United States Bankruptcy Code Chapter 11
In Re Artola Hermanos ex parte Andre Chale (1890) 24 QBD 640, cited
Galbraith v Grimshaw [1910] AC 508, cited
Flexistowe Dock and Railway Co v United States Lines Inc (1989) 1 QB 360, discussed
Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538, discussed
Federal Commissioner of Taxation v Hydro Carbon Products Pty Ltd (1986) 72 ALR 391, cited
Federal Commissioner of Taxation v Nestle Australia Ltd (1986) 69 ALR 445, cited
RUSSELL BURLEY CHAPMAN v GOOCH WARE TRAVELSTEAD AND OTHERS
WAG 103 OF 1997
FRENCH J
PERTH
25 AUGUST 1998
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
WAG 103 OF 1997
BETWEEN: RUSSELL BURLEY CHAPMAN
APPLICANT
AND: GOOCH WARE TRAVELSTEAD
FIRST RESPONDENT
AUSTRALIAN CITY PROPERTIES LIMITED
ACN 008 697 961SECOND RESPONDENT
HYDE PARK MANAGEMENT PTY LTD
ACN 008 698 708THIRD RESPONDENT
BLOCKLESS INVESTMENTS BV
FOURTH RESPONDENT
JUDGE:
FRENCH J
DATE OF ORDER:
25 AUGUST 1998
WHERE MADE:
PERTH
THE COURT ORDERS THAT:
A.On the First Respondent’s motion filed 10 July 1998:
The motion is dismissed.
The First Respondent is to pay the Applicant’s costs of the motion.
The time limited for seeking leave to appeal will be extended to 15 September 1998.
A.On the Fourth Respondent’s motion filed 10 July 1998:
The time for seeking leave to appeal is extended to enable the motion for leave to be heard.
The motion for leave is dismissed.
The Fourth Respondent is to pay the Applicant’s costs of the motion.
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
WAG 103 of 1997
BETWEEN:
RUSSELL BURLEY CHAPMAN
APPLICANT
AND
GOOCH WARE TRAVELSTEAD
FIRST RESPONDENT
AUSTRALIAN CITY PROPERTIES LIMITED
ACN 008 697 961SECOND RESPONDENT
HYDE PARK MANAGEMENT PTY LTD
ACN 008 698 708THIRD RESPONDENT
BLOCKLESS INVESTMENTS BV
FOURTH RESPONDENT
JUDGE:
FRENCH J
DATE:
25 AUGUST 1998
PLACE:
PERTH
REASONS FOR JUDGMENT
ON FIRST RESPONDENT’S MOTION FOR DISMISSAL
AND FOURTH RESPONDENT’S MOTION FOR EXTENSION OF TIME
AND LEAVE TO APPEAL
Introduction
These proceedings were commenced on 11 September 1997. The First Respondent, Gooch Ware Travelstead (Travelstead), who is a resident of the United States, seeks to have the proceedings dismissed as against him because he has invoked the protection of the United States bankruptcy laws. Under those laws a Plan of Reorganization for distribution of his estate to his creditors has been approved. The applicant, Russell Burley Chapman (Chapman), is out of time for claiming under that Plan and his claim would have been disputed. Travelstead says it is an abuse of process for Chapman to continue with this claim given the all embracing nature of the US Bankruptcy Code Plan and his failure to claim under it.
In addition, Blockless Investments BV (Blockless), a company incorporated in the Netherlands seeks leave out of time to appeal against my decision of 12 June 1998 dismissing its motion to set aside service of the application upon it.
History of Proceedings
The history of these proceedings is largely as set out in Reasons for Judgment given on 12 June 1998 dismissing a motion by Blockless to set aside an order for service out of the jurisdiction made by Nicholson J on 17 October 1997. For ease of reference that history and the outline of the amended statement of claim are included and brought up to date in these reasons.
These proceedings were commenced by application filed on 11 September 1997. A statement of claim was filed with the application. In the statement of claim the applicant, Chapman, identifies himself as a chartered accountant and, prior to July 1994, as a partner of a chartered accounting practice called Barrington Partners.
In or about 1972, according to the pleading, Chapman was appointed as company secretary of Australian City Properties Limited (ACP) and as secretary of a group of associated companies, the ACP Group. ACP was the major operating company in Australia of the Sir Robert McAlpine Sons Limited Group (the McAlpine Group) which is a United Kingdom property development and construction group.
From December 1989, Chapman became an executive director of ACP Group and says that from then until 1995 he ceased to carry on practice as a chartered accountant. He devoted himself entirely to the affairs of the ACP Group and those of Lord McAlpine who was a director of ACP as a nominee of Sir Robert McAlpine and Son (Trade Investment) Limited (McAlpine (TI)). In 1991 Chapman became chairman of directors of ACP and the ACP Group. In July 1994 he ceased to be a partner of Barrington Partners and entered into an Executive Service Agreement on 2 August with a company called Hyde Park Management Pty Ltd (Hyde Park) one of the ACP Group which provides it with management services.
By the agreement it is said he was engaged to serve the ACP Group as its chief executive officer from 1 July 1994 until 31 October 1995 with provision for extension by mutual agreement. The remuneration package was $249,500 per annum. The agreement was terminable for cause.
The statement of claim goes on to allege that the National Australia Bank was the principal banker for the ACP Group between 1991 and April 1995. It held securities over the Group’s assets and undertakings. In the second half of 1994 the ACP Group experienced grave financial difficulties and had either defaulted or was at risk of default under its National Australia Bank securities. As a result of its financial position, ACP was under pressure from the Bank to realise its assets or to find an investor able to provide funds to clear its debt. Chapman and the board of the ACP Group commenced a program in conjunction with the Bank of disposing of assets to reduce the indebtedness of the Group. At 28 April 1995 the total indebtedness of the ACP Group to the National Australia Bank was about $202 million.
It is said that on 9 September 1994 Chapman, in company with McAlpine and Derek Budden, another director of ACP, met with Gooch Ware Travelstead (Travelstead), a United States citizen ordinarily resident in Spain who is a property developer, and proposed that he acquire from McAlpine (TI) and another shareholder company, Libera Pty Ltd (Libera), all of the shares in the ACP Group. Alternatively it was suggested that Travelstead acquire from McAlpine (TI) and Libera all the shares in the ACP Group and acquire from the Bank its bank debt secured by the National Australia Bank securities. The condition of the proposal was that Chapman, McAlpine and Budden would receive 25% of the surplus arising upon the sale of the ACP Group assets and would remain as directors of the ACP Group and involved in its management. On or about 12 September 1994 and subject to various conditions, Travelstead agreed with Chapman, McAlpine and Budden that either he or his nominee would purchase the shares in the ACP Group and the NAB debt and that if he did so Chapman, McAlpine and Budden would remain as directors and involved in the management. This was called the Management Commitment Agreement. As a separate and independent agreement they would receive between them 25% of the surplus arising upon the sale of the ACP Group assets after repayment of the Bank debt and costs of sale. This was referred to as the Management Incentive Fee. Travelstead, with his attorney, Patrick Donnelly, undertook due diligence inspection of the ACP Group’s assets, properties and financial position between 17 and 26 October 1994.
Chapman, McAlpine and Budden agreed in October 1995 that they would each share in the Management Incentive Fee as to 8 1/3 percent each.
Travelstead is said to have offered to Chapman that he would arrange for Hyde Park and ACP Group to extend the Executive Service Agreement for a term of five years at a salary of $250,000 per annum, increasing by annual increments of $25,000. If the agreement were terminated the whole of the balance payable would be paid upon termination discounted to present day values at the date of payment. The original Executive Service Agreement is referred to as the First ESA, the First ESA as extended is called the Second ESA. Chapman says he accepted the offer.
For the purpose of purchasing the shares and the NAB debt, Travelstead is said to have acquired a controlling interest in Blockless Investments BV (Blockless) for the purpose of causing it to enter into various “transaction documents” to acquire control of the ACP Group, the NAB debt and the NAB securities. As a result of the acquisition which was completed on 28 April 1995 Blockless acquired the power to control the composition of the Board of Directors of ACP and Hyde Park and acquired the power to obtain the benefit of all the assets and undertakings of the ACP Group. Various payments were made by Blockless in consideration of the settlement.
At all material times in relation to the Management Incentive Fee Agreement Travelstead acted or purported to act on its own behalf and/or, prior to acquisition of a controlling interest in Blockless, as “the disclosed agent for an unidentified principal, later identified as Blockless” and post-acquisition as principal and controlling shareholder of Blockless.
Blockless is said to have “ratified the conduct of Travelstead” by resolution or by conduct consistent with the ratification of the Management Incentive Fee Agreement.
By offering to enter into the Management Incentive Fee Agreement with Chapman, McAlpine and Budden and to pay the management incentive fee, Travelstead allegedly made various representations. He:
(a)represented that he had, or would have, all necessary power, upon the completion of the acquisition of the ACP Group and the NAB debt by himself or his nominee, to:
(1)himself;
(2)alternatively, cause any nominee which acquired those assets to;
pay the Management Incentive Fee; and
(b)represented that he would upon the completion of the acquisition of the ACP Group and the NAB debt by his nominee cause that nominee to pay the Management Incentive Fee.
These representations were allegedly made by Travelstead with the intent, or the knowledge, or in circumstances where he ought reasonably to expect, that Chapman would rely upon them by not canvassing alternative means for the repayment of the NAB debt and alternative purchases of the ACP Group while the negotiations were in progress. Moreover it is alleged that the representations were made with the intent, knowledge or expectation that Chapman would rely upon them by not taking other measures to procure for himself benefits comparable to or better than the Management Incentive Fee and the Second Executive Service Agreement from an alternative purchaser of the ACP Group and the NAB debt.
Chapman alleges that at the time these representations were made, Travelstead did not have an intention to pay or cause his nominee to pay the Management Incentive Fee to Chapman. Alternatively, his intention to pay or cause his nominee to pay the Management Incentive Fee to Chapman was subject to undisclosed qualifications. Alternatively it is said that after the representations were made Travelstead changed his mind about paying or causing his nominee to pay the Management Incentive Fee to Chapman. This change in intention was not communicated to Chapman. Travelstead is said by reason of the representations to have engaged in conduct in trade or commerce which was misleading or deceptive or likely to mislead or deceive. Alternatively, it is alleged he was under an obligation to disclose his intention about the payment of the Management Incentive Fee and that Chapman was proceeding on the assumption that Travelstead would himself pay or cause his nominee to pay the Management Incentive Fee to him. The conduct of Travelstead in not advising Chapman as to his intentions or undisclosed qualifications or his change of intention is pleaded as conduct in trade or commerce by Travelstead which was misleading or deceptive or likely to mislead or deceive. Section 51A of the Trade Practices Act 1974 (Cth) is also invoked in relation to the representations.
Further representations are attributed to Travelstead in relation to his offer of a Second Executive Service Agreement to Chapman. Again these support pleas of misleading or deceptive conduct.
By making the representations and related conduct, Travelstead is said to have breached a duty of care to Chapman and a fiduciary duty owed to him. The fiduciary duty is also attributed to Blockless.
Blockless is said to be liable as principal for the misleading or deceptive conduct and breach of duty of care of Travelstead, as is Hyde Park.
Travelstead and Blockless are said to have repudiated the Management Incentive Fee Agreement in August 1995, which repudiation Chapman is said not to have accepted. It is also alleged that they repudiated another agreement made at the end of July 1995 under which Chapman was to resign as director and the ESAs were to be terminated. This was to be in consideration of their documenting the Management Incentive Fee Agreement forthwith. Chapman, it is said, did accept the repudiation of this apparent compromise agreement.
At about the same time, Hyde Park and the ACP Group are alleged to have repudiated the first and/or second ESAs which repudiation it is said Chapman accepted. Travelstead is said to have procured Hyde Park to breach the ESAs.
The relief claimed by Chapman is set out in the amended statement of claim as follows:
“And the Applicant claims:
8.2.1from Hyde Park and ACP or further or alternatively Travelstead:
(a)his salary, motor vehicle and superannuation package from 1 August 1995 to 31 October 1998 pursuant to the First ESA totalling $62,500;
(b)payment of the balance of monies due under the Second ESA, calculated in accordance with Schedule 1
8.2.2from Blockless and further or alternatively Travelstead:
(a)damages for breach of the Management Incentive Fee agreement;
(b)an account of 8 1/3% of the surplus arising upon the sale of the ACP Group assets after repayment of bank debt and costs of sale;
(c)a declaration that each of Travelstead and Blockless is bound by the Management Incentive Fee Agreement in the terms pleaded above or further or alternatively in terms of the McAlpine/Budden Agreement;
(d)a declaration that Travelstead holds his interest (whether as to shares or any analogous interest, or debt) in Blockless on trust for Chapman to the extent of 8 1/3% of the net proceeds of the realisation of the assets of the ACP Group;
(e)an order that Travelstead and Blockless do forthwith perform and carry into effect the Management Incentive Fee Agreement by executing an agreement with Chapman in terms of the McAlpine/Budden Agreement, save that:
(1)Chapman not be appointed a director of ACP; and
(2)the Agreement need not be executed by ACP Group.
8.2.3against all Respondents damages at law or alternatively, damages pursuant to Section 82 of the Trade Practices Act (Cth), and, or alternatively, Section 77 of Fair Trading Act (WA);
8.2.4interest on such damages as the Court may award pursuant to Section 82 of the Trade Practices Act as and from the date when the within causes of action arose until judgment or payment at the rate of 15% per annum or such other rate as the Court thinks fit;
8.2.5if and to the extent that Chapman is liable to pay Income Tax under the provision of Part IIIA of the Income Tax Assessment Act 1936 (Cth) upon the amount of any award of damages including damages under the Trade Practices Act (Cth) or the Fair Trading Act (WA) which liability arises because of the operation of those provisions in relation to these proceedings and which would not otherwise have been payable by Chapman, an order that the Respondents do indemnify Chapman against that liability and the costs of Chapman of defending or compromising that liability, on a solicitor and own client basis;
8.2.6costs.”
On 17 October 1997, Nicholson J made an order for service out of the jurisdiction on both Travelstead and Blockless. On 27 February 1998 Blockless filed a conditional appearance. On 17 March 1998 Blockless filed a motion seeking an order setting aside the application as against it and alternatively seeking to set aside service of the application. The Blockless motion was dismissed on 12 June 1998.
In the meantime on 29 May 1998, Travelstead was served personally with the proceedings at Broome.
The Motions for Decision
There are two motions before the Court for decision. The first motion by Travelstead seeks an order that Chapman’s application as against him be dismissed under O 20 r 2(1)(c) as an abuse of process. This is based upon Travelstead’s invocation of Chapter 11 protection under the United States Bankruptcy Code and the approval in December 1997 by the Federal Bankruptcy Court of a Plan of Reorganization under the Code which provides for the distribution of his assets to classes of accepted claimants. The second motion by Blockless seeks an extension of time for leave to appeal against my decision of 12 June 1998 and leave to appeal against that decision.
Chapter 11 Protection under US Bankruptcy Law
As appears from affidavit evidence in support of the motion, Travelstead filed a petition in the United States Bankruptcy Court for the District of Maryland on 31 May 1996. The petition was filed under Chapter 11 of the United States Bankruptcy Code. By 11 USC 301 it is provided that:
“A voluntary case under a chapter of this title is commenced by the filing with the bankruptcy court of a petition under such chapter by an entity that may be a debtor under such chapter.”
The filing of a petition operates as a stay of proceedings against the debtor in a range of broadly described classes of action which it is not necessary to set out for present purposes (11 USC 362). It remains in effect until lifted by order of the Bankruptcy Court, confirmation of a Chapter 11 plan or until the case is dismissed (11 USC 362(c), (d)). The relevant Bankruptcy Court retains jurisdiction over the debtor’s assets and has jurisdiction to resolve outstanding claims against the debtor and his assets.
Chapter 11 proceedings are ordinarily supervised by the Office of the US Trustee which can file motions and oppose or support the position of a Chapter 11 debtor or any other party in the case. (28 USC 586) The Code provides for appointment of committees to represent creditor groups.
It is a requirement of the Bankruptcy Code that a Plan of Reorganization be entered into dividing creditors into classes based upon legal rights and entitlements. In the ordinary course unsecured creditors are in one such class. Each secured creditor is a separate class because they have different securities (11 USC 1122). Plans must provide for payment in full of priority creditors such as taxing authorities.
In order to achieve confirmation of a plan a Chapter 11 debtor is required to prepare a Disclosure Statement and have that statement approved by the Court. The statement must provide information about the plan and information about the debtor’s situation.
11 USC 1129 provides for confirmation of a plan. The plan and its proponent must comply with relevant provisions of the Code. It must have been proposed in good faith and not by any unlawful means. Once confirmed the plan operates as a discharge of claims that arose before the date of confirmation including those of creditors who have not filed a claim or been scheduled. (11 USC 1141) The effect of a discharge under Chapter 11 is set out in 11 USC 524. The discharge, inter alia, “operates as an injunction against the commencement or continuance of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived”.
The Federal Bankruptcy Rules provide in r 3003 for filing proofs of claims or equity security interests in such cases. Thus r 3003(c)(2) provides:
“Any creditor or equity security holder whose claim or interest is not scheduled or scheduled as disputed, contingent, or unliquidated shall file a proof of claim or interest within the time prescribed by subdivision (c)(3) of this rule; any creditor who fails to do so shall not be treated as a creditor with respect to such claim for the purposes of voting and distribution.”
The Bankruptcy Court fixes a bar date for filing of claims. The evidence is that foreign claims are treated by the Bankruptcy Court in the same way as domestic claims. It is possible for a creditor to petition the Bankruptcy Court for authority to file a late claim. Where a claim is objected to under r 3007 the Bankruptcy Court will conduct a trial to determine whether or not it should be allowed.
The history of Travelstead’s bankruptcy proceedings in the United States was set out in an affidavit of his attorney, Stephen Fruin, sworn 21 July 1998. The outline of the relevant provisions of the Bankruptcy Code is taken from his affidavit and copies of 11 USC and the Federal Bankruptcy Rules which are exhibited to it. It is not in dispute in this case and I accept the description of the law and practice as summarised above.
The Bankruptcy Proceedings in the United States
It appears from Mr Fruin’s evidence that Travelstead filed four Plans of Reorganization and five Disclosure Statements. Modification of the statements and plans followed negotiation with various claimants and Court rulings. The case was, according to Fruin, “very active” involving the filing of some 750 pleadings and “a great deal of intense litigation”. There was a Creditors Committee representing unsecured creditors which retained counsel. The US Trustee took an active role, filed “numerous pleadings” and “took active positions on the development and ultimate resolution of the Chapter 11 case”. The Trustee supported confirmation of Travelstead’s Plan at the confirmation hearing. The Plan was approved on 29 December 1997 after a three day hearing.
In the Disclosure Statement reference is made to Blockless in which it is said Travelstead owns 80 per cent of the voting stock while Karen Hobbs, a former business associate, owns the remaining 20 per cent. The statement goes on to say:
“McAlpine and Budden also perform services for Blockless in the liquidation of the Portfolio package. Recently, a third individual named Russell Chapman has made a claim that he was entitled to the same type of treatment as McAlpine and Budden. Both the Debtor and Blockless dispute Chapman’s claim in its entirety.”
On 12 August 1997 and prior to confirmation of the Plan, Chapman’s solicitors, Freehill Hollingdale and Page wrote to the Trustee stating that their client had recently received the Third Amended Disclosure Statement and that it contained “no reference to two obligations owed to our client which materially impact upon the debtor’s distributable assets and his liabilities”. The letter also said that it was apparent from the Disclosure Statement that “one of Mr Travelstead’s principal asserted assets is his interest, via an interest in Blockless Investments BV, in the assets of the ACP Group in Australia”.
The letter then outlined Chapman’s account of his dealings with Travelstead substantially as appears in the statement of claim. A letter in similar terms was sent to Mr Fruin on 15 August. On 3 September, Fruin responded stating that:
“As you are obviously aware, Mr Travelstead is a debtor in possession in a chapter 11 bankruptcy proceeding pending in the United States Bankruptcy Court for the District of Maryland. Any action to collect the claim described in your letter, such as threatening litigation to collect the claim, is a violation of United States bankruptcy law.”
Chapman’s solicitors responded on 10 September by asking whether Fruin had instructions to accept service on behalf of Travelstead. Fruin replied on 14 September:
“I am in receipt of your letter of September 10, 1997 and I disagree with your analysis of the bankruptcy laws.
At the same time, I understand that the issues which you are raising in 1997 were addressed ad nauseam in both 1995 and 1996 by the Australian law firm of Bennett & Associates and there was not then nor is there now any basis for Mr Chapman’s claim.
In light of the foregoing, including the pending bankruptcy of Mr Travelstead in the United States, which proceeding Mr Chapman has been aware of for quite some time, as well as the fact that Mr Chapman has no claim and if he did has waived same, this letter is to further notify you that we are not authorized to accept service of Australian process on behalf of Mr Travelstead as you have requested.”
The present proceedings, as noted above, had been initiated in this Court on 11 September.
On 31 December 1997 the formal order of the US Bankruptcy Court for the District of Maryland was made approving Travelstead’s Modified Fifth Amended Disclosure Statement and confirming his Third Modified Fourth Amended Plan of Reorganization. After reciting the formal procedural history, the Court ordered that certain objections to the Disclosure Statement including an objection filed by Hobson be overruled and that the Statement be approved. The Plan was confirmed and among the orders made was an order that:
“…except as provided in the Plan, as amended, the Debtor is hereby discharged from any debt, liability or claim that arose before entry of this order to the extent provided pursuant to s 1141(d) of the Code;…”
Whether these Proceedings are an Abuse of the Court’s Process
Travelstead contends that, having regard to the proceedings in the US Bankruptcy Court, Chapman’s prior notice of those proceedings and his delay in instituting the present action, this action should be dismissed as an abuse of process. Factors relevant to the exercise of the power to dismiss the action on that basis are said to include:
1.The interference that any relief granted to Chapman would impose upon the bankruptcy proceedings in the United States which were brought first in time.
2.The potential for unfair appropriation of Travelstead’s interest in Blockless which is a major part of the approved plan.
3.The fact that Chapman had prior notice of the United States proceedings and at no time took steps to have his claim admitted in those proceedings.
4.Chapman’s failure to disclose the United States proceedings upon his application to this Court for leave to serve Travelstead out of the jurisdiction.
5.Chapman’s delay in bringing these proceedings and in serving Travelstead.
6.The advanced stage of the bankruptcy proceedings in the United States.
In addition, reliance is placed upon considerations of international comity and the similarity of bankruptcy procedures in this Court and in the US Bankruptcy Court. The common underlying principles of equal treatment of creditors and release of the debtor are invoked as is the fact that this Court could, in similar circumstances, seek to bind foreign creditors and have its orders respected by foreign courts.
Counsel for Travelstead accepted that there is no direct authority on all fours with the present case but relied by analogy upon cases involving anti-suit injunctions against local proceedings where related proceedings are pending in foreign courts.
There is no general principle that the forum of a country in which there are assets which first pronounces bankruptcy must displace every other forum – In Re Artola Hermanos ex parte Andre Chale (1890) 24 QBD 640 at 649. Nevertheless it can be stated as a general proposition that considerations of international comity favour the view that if a court finds that there is already pending a process of universal distribution of a bankrupt’s estate it should not allow steps to be taken in its territory which would interfere with the process of universal distribution – Galbraith v Grimshaw [1910] AC 508 at 513 (Lord Dunedin).
Each case must, of course, be considered on its own facts and such consideration will not necessarily lead to a yielding of control over assets located within the local jurisdiction in a way that may unfairly disadvantage a local creditor – Felixstowe Dock & Railway Co v United States Lines Inc (1989) 1 QB 360. In refusing to discharge Mareva injunctions affecting the English assets of a company undergoing Chapter 11 reconstruction in the United States Hirst J said at 389:
“…while a desire to concentrate proceedings in the United States is fully understandable, the experience in France and elsewhere in Europe shows that this aspiration must and does yield to the exigencies of the local situation. Once it is conceded, as it has been, albeit conditionally, that England is the appropriate forum for the resolution of the claims themselves, any objection in principle to the acknowledged forum conveniens continuing a conventional ancillary order seems to me extremely weak.”
That was a case about interim control of local assets. In the present case the relief sought by Chapman involves a money claim against Travelstead, damages, an account, declaratory relief and specific performance of the Management Incentive Fee Agreement. It is in the enforcement of any entitlement to all or any of that relief that the question of access to and distribution of Travelstead’s assets (if any) will arise. It should be noted however that one element of the relief claimed is a declaration that Travelstead holds his interest in Blockless on trust for Chapman to the extent of 8 1/3 per cent of the net proceeds of the realisation of the assets of the ACP Group. This in effect asserts a property interest which if established may limit the extent of assets available for distribution by requiring recognition of that interest.
Travelstead through his attorneys emphatically denies any liability to Chapman. Having taken advantage of the provisions of the United States bankruptcy law he now says to Chapman that the only place properly to assert his claim is in the Federal Bankruptcy Court for the District of Maryland and that the doors of that court are now shut against him by the order approving the Plan of Reorganization and discharging all creditor claims. So Chapman is to be left lamenting, outside the feast, like the foolish virgins in Saint Matthew’s gospel.
In my opinion considerations of international comity do not require that this Court deny the viability of Chapman’s claim upon the basis of the operation of the United States Bankruptcy Code. For Chapman to make out his entitlement to relief in this jurisdiction does not impact upon the order made by the United States court. He has a right to have his claim heard and determined in some forum.
Difficulties may arise if he seeks to enforce any relief against assets of Travelstead affected by the order of the US Bankruptcy Court. These difficulties would obviously be most acute, perhaps insuperable, in relation to assets in the United States. As to assets in this country, which may have to be ascertained, issues of comity may arise at the point of enforcement which do not arise in establishing the mere entitlement to relief. They could also arise if some interim protective orders were to be sort by Chapman as in the Felixstowe case. But such considerations in my opinion, do not have sufficient force to displace his right to proceed with his action. It is not in dispute that he is a local resident and that Travelstead has been served within this jurisdiction. The proceedings relate to agreements and conduct said to have a strong connection to, or to have been made or done in Australia, as appears to be the case.
In order to obtain the order he seeks for the dismissal of this action, Travelstead must demonstrate that having regard to the availability of a US Court to whose jurisdiction he is amenable and which could entertain the matter, this Court is clearly an inappropriate forum for the determination of the dispute. The focus is upon the inappropriateness of this Court rather than the appropriateness of the US Court – Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538. As was said in the joint judgment of the majority in that case at 559:
“…there are powerful policy considerations which militate against Australian courts sitting in judgment upon the ability or willingness of the courts of another country to accord justice to the plaintiff in the particular case.”
The issues in the proceedings in the Bankruptcy Court which would arise in the pursuit of Chapman’s claim would no doubt have been the same factual issues as those which he seeks to agitate in this Court. But the claim in this Court is based upon Australian statute law as well as the common law of contract and equitable principles. While it may be that the US Bankruptcy Court would have applied local law to similar effect or the law of Australia as foreign law, it cannot be said that Chapman’s choice of the Federal Court as the forum to adjudicate upon his dispute with Travelstead was inappropriate. And from his point of view it is of course vastly more convenient than litigating at a distance in the United States. Travelstead who is said to have and appears to have entered into transactions with a strong Australian connection and who is alleged to have engaged in conduct with such a connection would have little cause for complaint about forum apart from his invocation of US bankruptcy laws.
In my opinion Chapman was entitled to take the position he did and to invoke the jurisdiction of this Court. The question of enforcement if he is successful may raise other issues of conflict of laws and the availability of any assets for recovery. But that is a matter on which he assumes the risk of any litigant that there may be no recovery even after a judgment in his favour. As between him and Travelstead, there is really no serious issue of unfairness arising out of his choice of forum and the creditors covered by the Reorganization Plan have the benefit of the protection of US bankruptcy law in that regard. His claim was well known to Travelstead and his advisers in advance of the confirmation of the Plan. They no doubt assumed a calculated risk by proceeding with the Plan in disregard of his claim. And it may be that in the event they will be vindicated in their denial of it, either in terms of successfully resisting the current proceedings or resisting enforcement of any judgment against Travelstead’s assets. But I am not satisfied that they will be unfairly prejudiced by the pursuit on the part of Chapman of his action.
Travelstead’s motion will be dismissed with costs.
Blockless’ Motion for Leave to Appeal out of Time
Also before me is a motion by Blockless seeking leave out of time to appeal against my decision of 12 June 1998. By that decision I dismissed its motion for an order setting aside service of the application out of the jurisdiction as against it. The time limited for seeking leave to appeal against the decision was seven days and the motion for an extension of time and for leave was filed on 10 July 1998, some twenty eight days after delivery of the decision. The explanation for the delay is set out in an affidavit sworn 10 July 1998 by Jason MacLaurin, a solicitor employed by Bennett & Co who are the solicitors for Blockless. In that affidavit Mr MacLaurin says that Blockless conducts its business in the Netherlands. He was informed by Mr Bennett and believes that on 12 June 1998 Mr Bennett, who appeared to take judgment on behalf of Blockless, was also appearing as counsel in this Court before another judge in other proceedings. By reason of the time taken to conclude those proceedings the reasons for decision could not be communicated to Blockless until the week commencing 15 June 1998. Blockless’ instructions to seek leave to appeal were not received until 30 June. Mr Bennett erroneously believed that he had twenty one days in which to lodge the application for leave to appeal and for that reason no application was lodged before 10 July.
The short time limited for applications for leave to appeal against interlocutory rulings of the Court is designed to ensure prompt progress of pre-trial management of litigation. And the leave requirement is intended to limit challenges to interlocutory rulings so that the efficient disposition of the Court’s business will not be hampered by essentially collateral debates.
I accept, however, that a decision declining to set aside service against a party outside the jurisdiction is a matter of importance. In practical terms, decided another way, it would effectively have terminated these proceedings against Blockless. While mere oversight by a practitioner is not an excuse which carries weight in an application for extension of time, it is also not necessarily efficient or economic to deny a short extension when to do so might simply engender additional litigation for professional negligence and associated with that, a greater imposition on public resources than is imposed by the grant of the extension. In this case, there is in my view no prejudice to the applicant in extending the time for Blockless to seek leave to appeal.
Having said that, I am satisfied that leave should not be granted.
In its submissions in support of the grant of leave, Blockless contends that the decision to be appealed from involves important issues and principles:
1.First, in relation to Blockless, Chapman is seeking to use a “long arm” provision of the rules to compel a foreign respondent to defend itself in these proceedings, with all the attendant burdens to Blockless (as to costs and otherwise) which that procedure involves.
2.As a general point of law, the decision involves the test and the application of the test for making out a prima facie case under O 8 r 2(2) and questions of agency, ratification and corporate identity in that context.
The principal factors to be taken into account when deciding whether to grant leave to appeal are said to be:
1.Whether the decision below is attended with sufficient doubt.
2.If the decision appealed from were wrongly decided, whether that would work substantial injustice upon the proposed appellant – Federal Commissioner of Taxation v Hydro Carbon Products Pty Ltd (1986) 72 ALR 391 and Federal Commissioner of Taxation v Nestle Australia Ltd (1986) 69 ALR 445.
Blockless contends that there would be serious prejudice and substantial injustice to it in being compelled to defend at great cost, inconvenience and expense a matter in a foreign jurisdiction where, it is asserted, Chapman has failed to produce sufficient evidence to invoke the “long arm” provision.
The basis upon which the decision of 12 June 1998 is attacked is primarily that the requirements of a “prima facie” case were not satisfied and that the decision relied upon a mere possibility that there was in existence material which would support an inference of adoption or ratification by Blockless of Travelstead’s conduct.
The proposed notice of appeal sets out various grounds relating to ratification and agency and the evidence necessary to establish such relationships which will no doubt be agitated upon the hearing of the action. However, it is sufficient for me to say that the reference in the judgment to the possibility of Blockless’ adoption of Travelstead’s conduct and its ratification of that conduct being at least open was entirely consistent with the formulation of the test for a prima facie case which was enunciated in the reasons for judgment as follows:
“The question is whether on the material before the Court inferences are open which, if translated into findings of fact, would support the relief claimed.”
The word “possibility” in this context does not refer to mere speculative possibilities.
In determining whether or not leave to appeal should be granted, I also have regard to the obvious and close association between Travelstead and Blockless to the extent that Blockless can be regarded in substantial degree as an alter ego for Travelstead. They have common representation in these proceedings. In my opinion the prejudice asserted by reason of Blockless’ status as a foreign based company is likely to be illusory. The motion for leave to appeal is dismissed with costs.
Conclusion
Both motions brought by Travelstead and Blockless are dismissed. It is to be hoped that these proceedings can now move on from the stage of jurisdictional debate to substantive preparation for the hearing of the action.
I certify that this and the preceding seventeen (17) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice French
Associate:
Dated: 25 August 1998
Counsel for the Applicant: Mr P.D. Evans on 11 August 1998
Mr S.M. Standing on 21 August 1998Solicitor for the Applicant: Freehill Hollingdale & Page Counsel for the First and Fourth Respondent: Mr M.L. Bennett on 11 August 1998
Mr D. Shaw on 21 August 1998Solicitor for the First and Fourth Respondent: Bennett & Co. Date of Hearing: 11 August and 21 August 1998 Date of Judgment: 25 August 1998
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