China v Smith (Also Known as James with) [No 2] - [2013] WASC 164

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: CHINA -v- SMITH (ALSO KNOWN AS JAMES WITH) [No 2] [2013] WASC 164

CORAM: KENNETH MARTIN J

HEARD: ON THE PAPERS

DELIVERED : 6 MAY 2013

FILE NO/S: CIV 2583 of 2009
Consolidated by orders dated 17 September 2009

BETWEEN: PAUL CHINA
First Plaintiff
BENJAMIN CHINA
Second Plaintiff
CHINA BROTHERS PRODUCTION CO PTY LTD
Third Plaintiff
AND
JAMES SMITH (ALSO KNOWN AS JAMES WITH)
TIRED HORSES FILMS HOLDINGS PTY LTD
TRI-US ENTERTAINMENT HOLDINGS PTY LTD
Defendants

FILE NO/S :CIV 2376 of 2009

MATTER :Application pursuant to Order 26A of the Rules of the Supreme Court
Application for an interlocutory injunction

BETWEEN :CHINA BROTHERS PRODUCTION CO PTY LTD
Plaintiff
AND
JAMES SMITH (aka JAMES WITH)
TIRED HORSES FILMS HOLDINGS PTY LTD
TRI US ENTERTAINMENT HOLDINGS PTY LTD
Defendants

Catchwords:

Practice and procedure - application for opposed preliminary issue - turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA), O 1 r 4A, O1 r 4B

Result:

Preliminary issue entered

Category: B

Representation:

CIV 2583 of 2009

Consolidated by orders dated 17 September 2009

Counsel:

First Plaintiff                :     No appearance
Second Plaintiff            :     No appearance
Third Plaintiff               :     No appearance
Defendants:     No appearance

Solicitors:

First Plaintiff                :     Bennett & Philp Lawyers
Second Plaintiff            :     Bennett & Philp Lawyers
Third Plaintiff               :     Bennett & Philp Lawyers
Defendants:     Melvyn Levitan

CIV 2376 of 2009

Counsel:

Plaintiff: No appearance
Defendants: No appearance

Solicitors:

Plaintiff: Bennett & Philp Lawyers
Defendants: Melvyn Levitan

Case(s) referred to in judgment(s):

Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567; 3 All ER 651
Landsdale Pty Ltd v Moore [2009] WASCA 176
Tepko Pty Ltd v Water Board [2001] HCA 19; (2001) 206 CLR 1

KENNETH MARTIN J: These actions were commenced in a storm of intense activity associated with freezing orders sought by the plaintiffs against the defendant corporations and Mr James Smith (also know as Mr James With) in July 2009. At the time freezing orders were sought and made. These orders have been subsequently adjusted and varied from time to time.
At the heart of the dispute, which has meandered along too slowly since its commencement, are arrangements pursuant to which a film was to be made in Western Australia. The proposed title for the film was 'All The Wild Horses'. The drama was to concern the activities of a young man and a car with high horsepower (hence the name).
The proposed film was to be produced and directed by the third defendant (Mr Smith). Having once acted in a Rambo film with Sylvester Stallone, Mr Smith was also to play the lead role in the film.
There was a falling out between the parties with serious allegations ventilated by each side. Essentially, the plaintiffs are contending that Mr Smith (through the other defendant companies which he controls, or with which he is associated) was squandering or using for improper or personal purposes the funds advanced and raised by the plaintiffs. This contention is resisted by Mr Smith.
As I indicated, freezing orders were granted in 2009. In all, the plaintiffs appear to have advanced just over A$1.5 million of their money to fund the making of the proposed feature film. The film has not been made. The 2009 freezing orders I granted were issued in circumstances where significant amounts of the advanced funds had been consumed by the defendants. Issues arise as to the legitimacy of the consumption of these funds.
After the initial 2009 flurry, the matter has languished without any degree of pace. Yet having case managed the matter from inception, it is apparent that the scope of the pleadings and the discovery between the parties is very considerable. A range of potential allegations and issues arise which appear to be capable of spanning at least a two‑week trial were all matters in dispute to be ventilated.
The recent proposal for a hearing of the preliminary issue is advanced by the plaintiffs on a basis that they wish to contend for the existence of a Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567; 3 All ER 651 trust outcome (a Quistclose Trust) in their favour, over the remaining funds which are, pursuant to my orders, presently held in a solicitor's trust account.
It is contended, on behalf of the plaintiffs, that a determination of limited preliminary issues is a sensible deployment of the court's resources. It is said that the essential underlying facts necessary to be proven in such a preliminary issue are extremely confined. In all, it is put that there are excellent prospects that the existence of a Quistclose Trust can be determined by reference to arguments of law on uncontroversial underlying documents and without viva voce evidence on any side.
The plaintiffs also say that if they are successful on the preliminary issue they will not pursue the balance of their action. The balance of the action ranges across numerous matters, including, but not limited to, contentions of fraud, misrepresentations, and misleading and deceptive conduct. The plaintiffs are effectively offering to surrender those causes of action if they are successful in proving the existence of a Quistclose Trust in their favour over the residual moneys presently held in trust. They suggest that the exercise is more than capable of being accomplished within a maximum two‑day hearing framework.
The defendants strongly oppose the proposal, pointing first to a considerable body of case law demonstrating that courts are particularly cautious over the false economies which may possibly be delivered by the allurement of an early preliminary issue but, in the end only result in waste, unnecessary delays and so often effectively derail a progression of the matter to a more orderly resolution at trial. See in that respect, Tepko Pty Ltd v Water Board [2001] HCA 19; (2001) 206 CLR 1, 55 (Kirby and Callinan JJ in dissent, but not on this aspect, at [68] ‑ [70]).
The defendants also invoke observations of the Court of Appeal in Landsdale Pty Ltd v Moore [2009] WASCA 176. However, it is clear that the appeal court's decision was made in the context of a tort action and an early proposal to separate off damages from liability. The separation proposal was clearly inappropriate, bearing in mind that the element of damage goes to the very essence of establishing a cause of action in tort. Furthermore, Landsdale Pty Ltd v Moore did not deal with the more recent innovations in case management which follow out of O 1 r 4A and 4B of the Rules of the Supreme Court 1971 (WA).
In the present case, I am of the view it is appropriate to order a trial of the limited preliminary issues sought, covering the asserted Quistclose Trust favouring the plaintiffs, as:
(a)arguments as to the existence of a Quistclose Trust in favour of the plaintiffs, on my assessment of the action, do seem to be relatively confined and well capable of being dealt on largely uncontroversial and documented underlying facts;
(b)although the outcome of this preliminary issue would only be determinative one way if the plaintiffs are successful, on my assessment the resolution of this preliminary issue is still a sensible deployment of resources in contrast to the greater amount of resources potentially to be deployed in a two‑week trial;
(c)the argument which the plaintiffs wish to advance concerning the existence of a Quistclose Trust in their favour, on the face of it, presents as one of some potential merit, bearing in mind the underlying circumstances in which the funds were raised by the plaintiffs for the making of the film and the ensuing fact that the film has not been made;
(d)progress of the action to date, after the initial intensity of activity, has been unsatisfactory. Both sides are, on my assessment, struggling for the resources to fund high‑level commercial litigation;
(e)the plaintiffs, in the event of success, have offered to not pursue the balance of what may otherwise prove to be an action of considerable dimensions. That outcome would assist a more sensible alteration of resources all round;
(f)the objective of this preliminary issue targets what can be seen as the discernable economic carcass surviving at present (that is, the remaining funds in trust). Potential damages relief against the defendants generally stands a real prospect of an end delivery of a negligible economic result;
(g)considerations such as those applicable in Landsdale Pty Ltd v Moore in terms of not hiving off from trial a necessary element to proving a cause of action, namely damages in tort (is the gist of the cause of action), do not arise here;
(h)I measure the benefits of a possible earlier resolution from a resourcing point of view, against a prospect of delays likely to be encountered in listing, hearing and then issuing reasons for judgment after a two‑week trial. Such a trial would canvas the full panoply of presently pleaded issues between the parties, arising out of what is heavily disputed between them (at least on paper), assessed for the full scope of disputation encapsulated within the bounds of their present pleadings; and
(i)bearing in mind a prospect of determining the preliminary issue on a limited range of documentary evidence and uncontroversially agreed facts, the potential for prejudice in terms of a need for a later trial in the event of the defendants success, presents to me be minor and overall, an acceptable risk.
In all the circumstances, the interests of justice and modern case management considerations, partially as to assessing the proportionality of what is proposed against the undesirable economic prospect of considerable waste arising from a full blown trial, persuade me that it is appropriate for there to be the hearing of the preliminary issues in the terms proposed by the plaintiffs.
After the publication of these written reasons I will hear the parties concerning precise directions and orders to this end.