Chapman, Russell Burley v Gooch Ware Travelstead
[1998] FCA 674
•12 JUNE 1998
FEDERAL COURT OF AUSTRALIA
PRACTICE AND PROCEDURE - service out of the jurisdiction - setting aside - prima facie case - misleading or deceptive conduct - negligent misstatement - breach of fiduciary duty - conduct by natural person - subsequently becoming majority shareholder in overseas company - whether ratification of conduct by overseas conduct - whether prima facie case.
Trade Practices Act 1974 (Cth)
Tycoon Holdings Ltd v Trencor Jetco Inc (1992) 34 FCR 31, discussed
State of Western Australia v Vetter Trittler (In liq) (1991) 30 FCR 102, applied
Trade Practices Commission v The Gillette Company (No 2) (1993) 118 ALR 280, cited
Cell Tech Communications Pty Ltd v Nokia Mobile Phones (UK) Ltd (1994) 58 FCR 365, discussed
AIMS Computer Systems Pty Ltd v IPC Corporation (Australia) Pty Ltd (unrep Fed Court 20 September 1996 Lehane J), cited
Sydbank Soenderjylland A/S v Bannerton Holdings Pty Ltd (1996) 68 FCR 539, cited
Merpro Montassa Ltd v Conoco Special Products Inc (1991) ATPR 41-096, cited
RUSSELL BURLEY CHAPMAN v GOOCH WARE TRAVELSTEAD, AUSTRALIAN CITY PROPERTIES LIMITED ACN 008 697 961, HYDE PARK MANAGEMENT PTY LTD ACN 008 679 708 and BLOCKLESS INVESTMENTS BV
WAG 103 OF 1997
FRENCH J
PERTH
12 JUNE 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 008 697 961
SECOND RESPONDENT
HYDE PARK MANAGEMENT PTY LTD ACN 008 698 708
THIRD RESPONDENT
BLOCKLESS INVESTMENTS BV
FOURTH RESPONDENT
JUDGE:
FRENCH J
DATE OF ORDER:
12 JUNE 1998
WHERE MADE:
PERTH
THE COURT ORDERS THAT:
The Fourth Respondent’s motion filed 17 March 1998 is dismissed.
The costs of the motion are reserved.
The Applicant has leave to amend its statement of claim in accordance with the minute of amended statement of claim filed 6 May 1998.
The Applicant is to pay any costs thrown away by reason of the amendments to the statement of claim.
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 008 697 961
SECOND RESPONDENT
HYDE PARK MANAGEMENT PTY LTD ACN 008 698 708
THIRD RESPONDENT
BLOCKLESS INVESTMENTS BV
FOURTH RESPONDENT
JUDGE:
FRENCH J
DATE:
12 JUNE 1998
PLACE:
PERTH
REASONS FOR JUDGMENT ON MOTION TO SET ASIDE
SERVICE OUT OF JURISDICTION
History of Proceedings
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 went 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. 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, is said to have undertaken due diligence inspection of the ACP Group’s assets, properties and financial position between 17 and 26 October 1994.
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.
For the purpose of purchasing the shares and the debt, it is said that Travelstead caused Blockless Investments BV (Blockless) to be incorporated in the Netherlands and nominated it as the party to purchase the Group and the debt and securities. He is said to have caused Blockless to enter into various transaction documents to acquire control of the ACP Group, the National Australia Bank debt and the National Australia Bank securities. The transaction documents are referred to in the statement of claim. As a result of the acquisition, which was completed on 28 April 1995, it is said that 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 of the assets and undertaking of the ACP Group. Various payments were made by Blockless in consideration of the settlement.
At paragraph 3.4 of the statement of claim it is alleged that at all material times in relation to the Management Incentive Fee agreement, Travelstead acted and purported to act on his own behalf or further or alternatively as the agent of Blockless prior to its incorporation as a promoter of Blockless and after its incorporation of the promoter, principal shareholder and managing director of Blockless.
Further it is asserted that under the laws of the Netherlands a company may adopt a contract entered into on its own behalf prior to its incorporation, upon or within a reasonable time after its incorporation if it has ratified that conduct by resolution or by conduct consistent with the ratification of that contract. Moreover a managing director has the actual authority to conduct the entire business undertaking of the company. Blockless is said to have ratified Travelstead’s conduct by resolution or by conduct consistent with ratification.
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, Travelstead’s intention to pay or cause his nominee to pay the Management Incentive Fee to Chapman was subject to qualifications not communicated to him. 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 said 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 any change of intention was 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 this supports a plea of misleading or deceptive conduct.
Paragraph 3.4 of the statement of claim asserts:
“3.4.1At all material times in relation to the Management Incentive Fee Agreement, Travelstead acted or purported to act:
(a)on his own behalf; or
(b)further or alternatively, as the agent of Blockless:
(1)prior to its incorporation as a promoter of Blockless, being a company to be formed as the nominee of Travelstead; and
(2)after its incorporation, as the promoter, principal shareholder and a managing director of Blockless as the nominee of Travelstead.
3.4.2Under the laws of the Kingdom of the Netherlands:
(a)a company may adopt a contract entered into on its behalf prior to its incorporation upon or within a reasonable time after its incorporation ratified that conduct;
(1)by resolution; or
(2)by conduct consistent with the ratification of that contract; and
(b)a managing director has the actual authority to conduct the entire business undertaking of the company.
3.4.3Further, if and to the extent that Blockless was not incorporated at the time of the conduct pleaded in paragraphs 3.1.1 and 3.1.8 Blockless upon or within a reasonable time after its incorporation ratified that conduct:
(a)by resolution; or
(b)by conduct consistent with the ratification of that contract.”
Particulars of the ratifying conduct referred to an agreement made on 25 April 1996 between Blockless and Travelstead on the one hand and McAlpine and Budden on the other to give effect to the Management Commitment and The Management Incentive Fee whereby Travelstead and Blockless retained McAlpine with effect from 1 August 1995 and Budden with effect from 30 September 1995 to act as chairman of ACP and a director of ACP respectively. This agreement was of course inconsistent with the arrangement which Chapman says he had made.
At paragraph 3.4.29 of the statement of claim it is said that:
“In the premises pleaded in paragraphs 3.4.1 to 3.4.3 each act or omission of Travelstead pleaded in paragraphs 3.4.5 to 3.4.28 was an act or omission:
(a) of Blockless; or
(b)further or alternatively in which Blockless was knowingly concerned.”
The particulars of Blockless’ knowledge were based upon the knowledge of Travelstead who was the controlling shareholder and managing director of that company.
An allegation as to breach of a duty of care in relation to the making of the representations by Travelstead is raised. So too is breach of fiduciary duty on the part of Travelstead and Blockless.
The statement of claim was supported by an affidavit sworn by Chapman. The affidavit was sworn to support service out of the jurisdiction on Travelstead and Blockless. One of the exhibits to the affidavit disclose that in fact Blockless was incorporated in March 1981. This was evidently not noticed by Chapman when swearing the affidavit. He points out in a later affidavit on 27 May 1998 that he had believed Blockless was incorporated as a vehicle for the acquisition of the ACP Group. This was based upon conversations he had with Travelstead and his attorney, Donnelly, between October 1994 and January 1995 in which they said words to the effect that they would be forming a company for the purposes of the acquisition. And in a document exhibited as “RBC2” to Chapman’s first affidavit, being an Investment Summary prepared and distributed by Travelstead, it is said, inter alia:
“The offerors have formed a Netherlands corporation Blockless Investments BV (“Blockless”), to:
1.acquire the debt of the company and to acquire options on the shares of the company;
.....”
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, alternatively seeking to set aside service of the application and alternatively leave to serve the application.
The motion was argued before me on 3 June 1998. A minute of a proposed amended statement of claim was filed on 6 May. The question of leave to amend and the setting aside of the process as against Blockless were dealt with in the one hearing.
The proposed amendments were directed largely to the fact that contrary to the original pleading Blockless had been incorporated in 1981. Thus where it was said that Travelstead had caused Blockless to be incorporated in the Netherlands, it was now said he had acquired a controlling interest in Blockless for the purpose of causing Blockless to enter into the transaction documents. And in the pleading of Travelstead’s conduct in 3.4 the proposed amended statement of claim is formulated as follows:
“3.4.1At all material times in relation to the Management Incentive Fee Agreement, Travelstead acted or purported to act:
(a)on his own behalf; or
(b)further or alternatively,
(1)prior to the acquisition by Travelstead of a controlling interest in Blockless, (being a company to be formed or nominated as the nominee of Travelstead) as the disclosed agent for an (at the time) unidentified principal (later identified as Blockless); and
(2)after the acquisition by Travelstead of a controlling interest in Blockless, as the principal and controlling shareholder of Blockless as the nominee of Travelstead.
3.4.2Blockless ratified the conduct of Travelstead:
(a)by resolution; or
(b)by conduct consistent with the ratification of that contract.”
Particulars of the ratifying conduct remain unchanged.
Setting Aside Service
The motion before me was brought under O 9 r 7 of the Federal Court Rules which provides:
“7(1) The Court may, on application made by a respondent to any originating process on notice of motion filed within the time fixed by sub-rule (2), by order -
(a)set aside the originating process;
(b)set aside the service of the originating process on the respondent;
(c)declare that the originating process has not been duly served on the respondent;
(d)discharge any order giving leave to serve the originating process outside Australia or confirming service of the originating process outside Australia.”
The decision to grant leave to serve Blockless out of the jurisdiction was of necessity made in the absence of Blockless. The entitlement to serve Blockless outside the jurisdiction was subject to its right under O 9 r 7 to move to set aside the service as against it. As Wilcox J said in Tycoon Holdings Ltd v Trencor Jetco Inc. (1992) 34 FCR 31:
“The rationale of this rule is that a decision to grant leave must necessarily be made in the absence of the affected respondent; fairness therefore requires that the respondent have the opportunity to put before the court any additional facts or arguments which might suggest that leave ought not to have been granted. Although an application under O 9, r 7 results in a review of the original decision to grant leave, it is a rehearing conducted on the basis of additional materials. The fact that, upon the rehearing, a judge concludes that the service ought to be set aside is no indication that the initial order was incorrectly made, having regard to the position which then appeared.”
The original order was made under O 8 r 1 of the Federal Court Rules which sets out the various circumstances in which service out of the jurisdiction may be ordered and imposes certain conditions as prerequisites of such an order including r 2(2) which provides:
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 basis of the Blockless attack upon the order for leave to serve the process upon it out of the jurisdiction is that the applicant lacks a prima facie case for the relief which he seeks. In other words, the condition under O 8 r 2(2)(c) is not satisfied. As I said in State of Western Australia v Vetter Trittler (In liq) (1991) 30 FCR 102 at 110:
“In my opinion...for the purposes of the existing O 8, r 2(2), a prima facie case is made out if, on the material before the court, inferences are open which if translated into findings of fact, would support the relief claimed.”
It is not necessary for those purposes to find a prima facie case in relation to each cause of action pleaded. See also Trade Practices Commission v The Gillette Company (No. 2) (1993) 118 ALR 280 and Cell Tech Communications Pty Ltd v Nokia Mobile Phones (UK) Ltd (1994) 58 FCR 365 at 373 and AIMS Computer Systems Pty Ltd v IPC Corporation (Australia) Pty Ltd (unrep Fed Court 20 September 1996 Lehane J). I also agree with the observation of Lindgren J in Cell Tech Communications Pty Ltd that the Court should not be astute to find that an applicant does not have a prima facie case for damages merely because an amendment to its statement of claim may be shown to be necessary or desirable (at 374).
A Prima Facie Case
The core question on this motion is whether there is any basis, amounting to a prima facie case, shown on the materials before the Court, for attributing liability to Blockless in accordance with the proposed amended statement of claim. It is contended for Blockless that there is no such basis. It is said that the record shows that prior to 13 January 1995 Travelstead had no relationship whatsoever with Blockless. After that date he became a shareholder but not the sole shareholder in the company. At no time has he been a director of Blockless. Moreover it is submitted there is no evidence of any communication or representation by Blockless to Chapman whether by way of ratification or by holding out of Travelstead as Blockless’ agent at any material time either before 1995 or in June and July 1995. To the contrary it is said, Blockless’ corporate structure and independence was manifest for example in the Option Deeds dated 20 January 1995 which are annexed to Chapman’s affidavit. The agreement of 25 April 1996 put forward by Chapman as an act of ratification is said to have the opposite effect. That agreement was properly executed by Blockless but is contrary to the terms of the agreement alleged by Chapman. It expressly provides that any profit share entitlement in the sale of the ACP Group assets arises from Blockless retaining the services of Lord Alpine and Mr Budden as from 1 August 1995 and 30 September 1995 respectively and in recognition of reasonable and necessary expenses incurred and services performed by Travelstead. It is submitted for Blockless that taking Chapman’s case at its highest none of the alleged conversations with Travelstead disclose any misrepresentations or agreements by Blockless. They merely consisted of qualified discussions relating to future plans of Travelstead none of which are binding upon Blockless. Chapman, it is said, has attempted to attach liability to Blockless for alleged misrepresentations and breaches of fiduciary duties upon the following bases:
1.That Travelstead was Blockless’ promoter whose pre-incorporation agreements were subsequently ratified by Blockless. This argument has now been abandoned because, as it turns out, Blockless had been in existence since 1981.
2.That Travelstead acted as Blockless’ agent.
3.That by reason of Travelstead’s agency or control of Blockless it is liable for his alleged misleading and deceptive conduct and is liable for his breaches of various duties to Chapman.
Blockless submits that the acts of a shareholder or even a party who has subsequently acquired management or control of the company cannot simply be imputed to a company. Moreover it is said no prima facie case is made out of any knowing assistance by Blockless in any dishonest or fraudulent design. Further, it is said, Chapman has failed to make out any prima facie case of a fiduciary relationship between Blockless and himself. The relationship of a potential acquirer of the ACP Group and the chairman of the group does not give rise to a fiduciary relationship. Ratification of a contractual arrangement does not arise out of the entering into of an entirely different and distinct contract. As to the representations alleged, it is said they were made to Chapman by Travelstead before January 1995. Chapman did not believe Blockless was in existence at this time. None of the alleged representations are binding upon Blockless. A purported agent cannot be relied upon as the source of any apparent authority. Moreover it is put that Chapman clearly did not on his own evidence, rely upon any agency or any belief that Travelstead was acting as an agent. Any reliance or belief he had at the relevant time was founded upon a false premise fatal to his case against Blockless. At most all that could arise would be a claim for a breach of warranty of authority against the purported agent, Travelstead.
In response, Chapman says that fundamentally the question turns upon Blockless’ adoption and therefore ratification of the conduct of Travelstead in negotiating the acquisition of the ACP Group with Chapman, McAlpine and Budden. That is so whether it is viewed as ratification of a pre-incorporation contract or ratification of a pre-acquisition contract by Blockless acting as the nominee of Travelstead to undertake the contract as now appears to be the case. General principles of Australian agency law relating to ratification are said to be consistent with the evidence of Dutch agency law before the court and are relied upon by the applicant.
There is evidence from a Dutch attorney, Justus Voute, relied upon by Chapman that the power of a person to act on behalf of a company with respect to third parties is, in the Netherlands, for the most part controlled by ordinary agency principles. Thus Article 3:69 of the Civil Code states:
“A juridical act entered into by a person acting, without the right to do so, as procurator in the name of another, may be ratified by the latter and the juridical act will then have the same effect as if it has been performed pursuant to a procuration.”
So, it is said when a managing director or any other person representing the company exceeds his authority the unauthorised act can be ratified through acquiescence or acceptance by the company of the benefits of the transaction with knowledge of the material facts. The Code is silent on the question to whom the ratification should be addressed. Mr Voute says this might be done to the third party and/or to the unauthorised person. There are no specific formalities with regard to a ratification.
Mr Voute also refers to company searches which he carried out which indicate that prior to 6 June 1994 the name of Blockless was Sarook Carpet en Textiel BV. The sole shareholder of Blockless from 12 January 1994 was a company called De Vang Holdings BV. It was sold to ABN Special Corporate Services BV in 1995. That company is used by ABN Bank to acquire and hold shares in companies acquired from former shareholders usually to sell the shares again to a new shareholder who wishes to start new business activities in an already existing company therefore avoiding the costs and delay in the process of incorporating a new company. This is in accordance with its corporate objects established in the Articles of Association. Its managing directors were also managing directors of Blockless before the majority shareholding in Blockless was sold to Travelstead.
ABN Special Corporate Services BV became the sole managing director of De Vang Holding BV and in that capacity sold the majority of the shares in Blockless to Travelstead on 13 January 1995. At the same date, according to Mr Voute, MeesPierson Trust BV (a member of the ABN group) became the new managing director. This trust company often acts as nominee to perform managerial activities on behalf of and under the instruction of its clients who, for whatever reason, don’t wish to be associated with that company. This, he said, is generally based upon a special contractual arrangement between the trust company and the client.
In setting out Mr Voute’s evidence I am not drawing any final conclusion as to its correctness either on matters of fact or law but rather identifying evidence relevant to the question whether a prima facie case exists.
Chapman puts his case against Blockless in his submissions on the basis that he now alleges that Travelstead acted on behalf of or as disclosed agent for what was at the time an undisclosed principal, later identified as Blockless. The proposed amended statement of claim, it is said, is in substance a plea of agency by ratification or subsequent adoption. Reliance is placed upon the evidence as to Dutch civil law that the power of a person to act on behalf of a company with respect to third parties is for the most part controlled by ordinary agency principles.
There is other evidence as to Dutch law which was tendered by Blockless. It is not for me to resolve the question of the content of the foreign law in these proceedings, that being a matter of fact which would be the subject of inquiry at trial. 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 - State of Western Australia v Vetter Trittler Pty Ltd (supra) at 110; Sydbank Soenderjylland A/S v Bannerton Holdings Pty Ltd (1996) 68 FCR 539 at 549. I accept the submission for Chapman that the approach to be taken does not call for a substantial inquiry; evidence should be of a kind in proportion to the nature of an interlocutory issue. Moreover the Court will allow that relevant inferences are open more readily having regard to the fact that the applicant has not had the advantage of discovery, the subpoena and other procedural aids to the making out of a prima facie case at trial: Merpro Montassa Ltd v Conoco Special Products Inc (1991) ATPR 41-096 at 52,541 per Heerey J.
Mr Evans who appeared for Chapman seemed to accept that ratification by Blockless of Travelstead’s conduct was the core of the case against Blockless. He accepted that there were no particulars of any ratifying resolution and that that aspect of the plea was “a fishing pole sticking up in the air”. It seems to have been based upon the assumption that if the affairs of Blockless were conducted regularly then there would be anterior resolutions to the execution of the agreement of 25 April 1996 exhibited to a supplementary affidavit of Jason MacLaurin sworn on 20 May 1998.
If reliance were to be placed entirely upon the plea of a resolution as ratifying conduct, then I would have difficulty in holding that a prima facie case had been made out. In relation to ratification by conduct however, the finding of the Court will depend upon a constellation of facts including the operation of Dutch law and the involvement of Blockless in subsequent transactions, the relationship between itself and Travelstead in terms of its knowledge of the anterior negotiations and whether or not it can be said to have adopted and to be bound by his conduct. The evidence may well support an inference that Blockless was a shelf company under the effective control of Travelstead from the date that he acquired it and that it was acquired for the purpose of implementing the acquisition of the ACP Group.
It is sufficient for me at this stage to say that in my opinion it is at least arguable that Blockless was so closely involved with Travelstead, in a factual sense, notwithstanding its involvement postdated the conduct on his part which is complained of, and so closely connected with the implementation of the agreements which he had negotiated or variations thereof that the possibility of its adoption of his conduct and ratification thereof is at least open. In my opinion Chapman has not failed to show a prima facie case under O 8 r 2(2) of the Federal Court Rules. That is not to comment on the strength of the case upon which Mr Bennett made a powerful attack. However, in my opinion, at this stage enough is shown to deter me from interfering with the order made by Nicholson J and that order will stand. The motion is dismissed. The amendments to the statement of claim will be allowed.
I certify that this and the preceding fourteen (14) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice French
Associate:
Dated: 12 June 1998
Counsel for the Applicant: Mr P.D. Evans Solicitor for the Applicant: Freehill Hollingdale & Page Counsel for the Fourth Respondent: Mr M. Bennett Solicitor for the Fourth Respondent: Bennett & Co Date of Hearing: 3 June 1998 Date of Judgment: 12 June 1998
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