Global Partners Fund Ltd v Babcock & Brown Ltd (In Liq) - [2010] NSWSC 270

No judgment structure available for this case.

CITATION: Global Partners Fund Limited v Babcock & Brown Limited (In Liquidation) [2010] NSWSC 270

HEARING DATE(S): 15,16,17,18 & 24 March 2010

JUDGMENT DATE :
12 April 2010

JUDGMENT OF: Hammerschlag J

DECISION: Plaintiff’s motion dated 12 February 2010 is dismissed. The proceedings against the second defendant are dismissed. The Summons against the third and fourth defendants is set aside.

CATCHWORDS: CORPORATIONS – EQUITY – CONTRACT – PRIVATE INTERNATIONAL LAW – PRACTICE AND PROCEDURE – Corporations Act 2001 (Cth) s 500(2) – a newly appointed General Managing Partner incorporated in the Cayman Islands of a limited partnership registered in England commenced proceedings in this Division against the former General Managing Partner and three other entities in the Babcock & Brown Group claiming damages for breach of fiduciary duties owed to the partnership and for breach of duty of care – the first of those other entities (an Australian corporation) is in liquidation and the proceedings were commenced without the necessary statutory leave – leave was opposed by the liquidators – requirements for leave and whether it should be granted in this case – the former General Managing Partner (the fourth defendant in these proceedings) which is incorporated in the Cayman Islands commenced proceedings in England for monies allegedly owed to it under the Partnership Agreement – one of the two other entities sued in this Court (the second defendant) is an Australian corporation, the other is a limited partnership in Delaware – they are also plaintiffs in the English proceedings claiming declaratory relief – the plaintiffs in the English proceedings (the second, third and fourth defendants here) brought motions to set aside the summons against them, to set aside service, to dismiss the proceedings or to stay them – PRACTICE AND PROCEDURE – summary dismissal and striking out – whether plaintiff’s case should be struck out as not disclosing a cause of action or as embarrassing - EQUITY – standing of the plaintiff to sue for damages suffered by “the Partnership” – CONTRACT – Partnership Agreement contains covenant consenting to the exclusive jurisdiction of the English courts – construction and operation of the provision – PRIVATE INTERNATIONAL LAW – forum non conveniens – whether this jurisdiction is clearly inappropriate for the proceedings

LEGISLATION CITED: Corporations Act 2001 (Cth)
Limited Partnerships Act 1907
Uniform Civil Procedure Rules 2005 (NSW)
Civil Procedure Act 2005 (NSW)
Corporations Regulations 2001 (Cth)
Companies Act 1961 (Qld)

CATEGORY: Principal judgment

CASES CITED: Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538
Spiliada Maritime Corporation v Cansulex Ltd [1987] AC 460
Vagrand Pty Ltd (in liq) v Fielding (1993) 10 ACSR 373
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125
Dey v Victorian Railways Commissioners (1949) 78 CLR 62
Webster v Lampard (1993) 177 CLR 598
Agar v Hyde (2000) 201 CLR 552
Wickstead v Browne (1992) 30 NSWLR 1
Strong v Simpson (Supreme Court of New South Wales, McLelland J, 31 July 1992, unreported)
Ucak v Avante Developments Pty Ltd [2007] NSWSC 367
National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514
Trendtex Trading Corp v Credit Suisse [1982] AC 679
Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41
Aggeliki Charis Compania Maritima SA v Pagnan SpA (The Angelic Grace) [1995] I Lloyd’s Rep 87
Huddart Parker Ltd v The Ship “Mill Hill” (1950) 81 CLR 502
Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197
FAI General Insurance Co Ltd v Ocean Marine Mutual Protection and Indemnity Association Ltd (1997) 41 NSWLR 117; (1997) 41 NSWLR 559
Akai Pty Ltd v People’s Insurance Company Ltd (1996) 188 CLR 413
Incitec Ltd v Alkimos Shipping Corporation [2005] FCA 191
Owners of cargo on vessel Eleftheria v Owners of Ship Eleftheria [1969] 2 All ER 641
Compagnie des Messageries Maritimes v Wilson (1954) 94 CLR 577
Recyclers of Australia Pty Limited v Hettinga Equipment Inc (2000) 100 FCR 420
Fiona Trust & Holding Corporation v Privalov [2008] 1 Lloyd’s Rep 254
Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160
Donohue v Armco Inc [2002] 1 Lloyd’s Rep 425
Winnetka Trading Corporation v Julius Baer International [2008] EWHC 3146 (Ch)
Morgan Stanley & Co International PLC v China Haisheng Juice Holdings Co Ltd [2009] EWHC 2409 (Comm)
Credit Suisse First Boston (Europe) Ltd v MLC (Bermuda) Ltd [1999] 1 Lloyd’s Rep 767
CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345
Puttick v Tenon Limited (2008) 238 CLR 265
Bella Products Pty Ltd v Creative Designs International Ltd (2009) 258 ALR 538
Ogilvie-Grant v East Liquidator of Gordon Grant and Grant Pty Ltd (1983) 7 ACLR 669
Meehan v Stockmans Australia Cafe Holdings Pty Ltd (1996) 22 ACSR 123

PARTIES: Global Partners Fund Limited - Plaintiff
Babcock & Brown Limited (In Liquidation) - First Defendant
Babcock & Brown International Pty Limited - Second Defendant
Babcock & Brown LP - Third Defendant
BBGP Managing General Partner Limited - Fourth Defendant

FILE NUMBER(S): SC 2010/26129

COUNSEL: T.G.R. Parker SC with N.J. Owens [Plaintiff]
P.M. Wood - [First Defendant]
A.S. Bell SC with C.A. Moore and A. Rao - [Second, Third & Fourth Defendants]

SOLICITORS: Clayton Utz [ Plaintiff]
Blake Dawson [First Defendant]
Freehills [Second, Third & Fourth Defendants]

- 64 -

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

HAMMERSCHLAG J

12 APRIL 2010

2010/26129 GLOBAL PARTNERS FUND LIMITED -V- BABCOCK & BROWN LIMITED (IN LIQUIDATION)

JUDGMENT

INTRODUCTION

1 HIS HONOUR: By Summons and accompanying Commercial List Statement sued out of this Court on 29 January 2010 the plaintiff initiated proceedings against the second, third and fourth defendants. The Summons claims orders for an account or equitable compensation, damages and, as against the fourth defendant, declarations.

2 Although the plaintiff has cited the first defendant, it is in liquidation. By s 500(2) of the Corporations Act 2001 (Cth) proceedings were not to be commenced against it except by leave. The plaintiff neither applied for, nor obtained, such leave before suing out the process.

3 Before the Court are three motions:

a a motion by the plaintiff for leave to proceed against the first defendant;

b a motion by the second defendant for orders that the Summons as against it be set aside, that the Court decline to exercise jurisdiction, that the Court stay the proceedings, that the Court dismiss the proceedings and that the Summons be struck out;

c a motion by the third and fourth defendants for orders that the Summons as against them be set aside, that the service of the Summons on them be set aside, that the Court declare that it has no jurisdiction over them in respect of the subject matter of the proceedings, that the Court decline to exercise jurisdiction and that the Court stay the proceedings.

THE PARTIES

4 The plaintiff was incorporated in the Cayman Islands on 7 September 2009.

5 The first defendant is an Australian company. It is the ultimate holding company of a group which includes each defendant and some 1500 other corporations and entities (“the Group”). The Group is variously referred to as BB, B&B and Babcock & Brown. The first defendant was placed into liquidation on 24 August 2009 by a resolution of its creditors.

6 The second defendant is an Australian company. It is a direct subsidiary of the first defendant. It has been described as the main operating and asset owning company of the Group.

7 The third defendant is a limited partnership constituted under the laws of the State of Delaware, USA. The partners in the third defendant are two direct subsidiaries of the second defendant.

8 The fourth defendant is a United Kingdom corporation. It is an indirect subsidiary of the first defendant. Two entities are interposed between it and the first defendant.

FACTUAL BACKGROUND

The Prospectus

9 In September 2004 the first defendant raised capital by way of an initial public offer of its shares (“IPO”). Its shares were then listed on the Australian Stock Exchange.

10 The IPO was by way of a prospectus dated 9 September 2004. The prospectus disclosed details of the first defendant’s board of directors as well as an “Executive Committee”. It stated that the Group’s global activities would be managed by the Executive Committee consisting of executive directors and a number of named executives, whose biographies were included. It stated that the Executive Committee would provide strategic direction for the Group’s activities, have delegated authority to deploy capital and have oversight of Group operations and administration. The executive directors named included Mr James Babcock and Mr Philip Green. Members of the Executive Committee included Mr Michael Maxwell, Mr Robert Topfer and Mr Richard Umbrecht.

11 The prospectus described Mr Topfer as coordinating the Group’s Corporate Principal Investment and Funds Management activities worldwide. Mr Umbrecht was described as managing the US Special Products team and coordinating the Group’s Special Products activities worldwide.

12 The first defendant’s annual report for the year ended 31 December 2006 described Mr Green as the chief executive and stated that he was based in the Sydney office. It described Mr Topfer as Global Head Corporate Finance.

Formation of the Partnership

13 On 17 May 2005, there was constituted a limited partnership named Babcock & Brown Capital Partners “to carry on the business of an investor and in particular, of identifying, negotiating, making, monitoring and realising investments and to carry out all functions and acts in accordance therewith” (“the Partnership”). The Partnership was established by a Limited Partnership Agreement made on 17 May 2005 and amended on 1 July 2005 (“the Partnership Agreement”). The parties to the Partnership Agreement were the fourth defendant which became the Managing General Partner of the Partnership, and two other Babcock & Brown entities, one a Scottish limited partnership and the other a Cayman Islands corporation, which became Limited Partners. The Partnership was (and remains) registered as a limited partnership in England under the Limited Partnerships Act 1907 of that country.

14 The Partnership Agreement anticipated “Commitments” being made to the Partnership by investors who would become Limited Partners by signing a Deed of Adherence, and then be treated as parties to the Partnership Agreement.

15 The name of the Partnership was subsequently changed to Babcock & Brown Global Partners and then to its present name, Global Partners Fund LP. The Partnership business and the Fund which was created from Commitments have from time to time both been referred to as “the Fund”.

16 The Partnership Agreement is a substantial document. The terms relevant to the matters now under consideration are set forth in the Schedule “A” to this judgment.

The Private Placement Memorandum

17 The Partnership Agreement refers to a Private Placement Memorandum (“PPM”) dated 10 January 2005 as amended and supplemented from time to time. No document dated 10 January 2005 was in evidence, but the plaintiff tendered, without objection, a PPM dated 5 July 2005. Submissions proceeded on the assumption that that document is a supplementation of the one referred to in the Partnership Agreement. The PPM was issued in the United Kingdom by an entity called Babcock & Brown Investment Management Limited (“BBI PL”). BBI PL entered into an “Advisory Agreement” with the fourth defendant.

18 The PPM defines “Babcock & Brown” to mean “BBI PL” and its 100 per cent owned operating subsidiaries. However, it also refers to “Babcock & Brown” as having decided to undertake the IPO and having raised $550 million on the Australian Stock Exchange. This is clearly a reference to the first defendant rather than to BBI PL or any subsidiary.

19 The PPM makes a series of statements including the following:

The Fund

Babcock & Brown (“B&B” of the “Group”) aims to establish a €240 million principal investment fund, Babcock & Brown Capital Partners, (the “Fund”) or the “Partnership”). The fund follows on the success of Babcock & Brown’s principal investment activity since 1999 (see Historical Track Record, page 21) and aims to achieve attractive risk-adjusted returns by investing in and restructuring capital assets and capital-asset based businesses globally, leveraging Babcock & Brown’s global network of relationships and geographical presence. The Fund will be managed independently of Babcock & Brown’s advisory business and investment/divestment decisions will be based on considerations of investment return and portfolio diversification.

Babcock & Brown believes this is an exciting investment opportunity due to the Group’s focused sector expertise, its sophisticated structuring and financing aptitude and strong deal generating capability. Babcock & Brown targets investment opportunities for the Fund capable of generating overall net IRR in excess of 25% with low correlation to the quoted equity markets and substantially in categories of assets not otherwise readily accessible by the Fund’s Investors.

The Fund is being formed to invest exclusively in deals originated and structured by Babcock & Brown on a global basis. The Fund will have the contractual right to select and participate in attractive equity opportunities that Babcock & Brown is seeking to syndicate to third party investors. In many cases, Babcock & Brown intends to invest its proprietary capital into transactions alongside the Fund, and Babcock & Brown’s commitment of €41.5 million to the Fund demonstrates the alignment of its interests with those of the Fund’s investors. Over the course of the Investment Period, the Fund Investment Committee will aim to construct a well-diversified portfolio of investment by sector and geography.

Deal Origination

Babcock & Brown has a significant high-quality deal origination capability based on its market reputation, relationship networks and the efforts of over 300 experienced professionals located in 19 offices throughout the world. For the year ended 31 December 2003, Babcock & Brown executed over 200 transactions with a value of over US$18 billion, of which it made a capital commitment in approximately one quarter of these transactions. Many of these transactions were sourced “off-market” and structured by Babcock & Brown to provide attractive entry prices and other favourable investment terms, which are key elements of a value-focused investment program. The Group has a history of constantly seeking to apply new, creative solutions to maintain a strong investment pipeline as the investment environment changes.

A major competitive advantage of the Fund over other private principal investment vehicles lies in its having a first option over investment opportunities generated out of Babcock & Brown’s global ‘principal investment’ deal stream.

20 The PPM includes a section entitled “Investment Process & Approval Procedure” which contains a diagrammatic representation of a four-stage investment approval process. The PPM describes this process as involving a number of different teams variously described as the Transaction Team, the Fund Team, the Fund Investment Committee and the Fund Advisory Board. First there is a preliminary review by a Transaction Team which presents positive recommendations to the Business Area Head with a suggested plan of action. The Business Area Head and his team then decide whether to commit additional time and resources to undertake the next stage of the transaction. Where the Business Area Head decides to pursue the transaction an initial paper is circulated to “Babcock & Brown’s Executives” who then decide whether the transaction will be committed and or syndicated. If it will be syndicated the Fund Team works with Business Area Heads to analyse the opportunity. The investment opportunity is reviewed by the Fund Team who then presents its finding to the Fund Investment Committee. The final stage is a summary of the final terms of the deal which is signed off by the Fund Investment Committee.

21 According to the PPM:

· the Fund Investment Committee comprises “four executives from Babcock & Brown; Jim Babcock, Phil Green, Edward Hanson and Mike Maxwell; as well as an independent member, George Magan”. Mr Hanson was a director of Babcock & Brown Investment Management Limited, having specialised in corporate finance, based in London and predominantly focused on the European Property business and Funds Management business.

· Business Area Heads are heads of a “Babcock & Brown Business Area” and act as supervisors for each transaction to be considered for investment by the fund. Business Area Heads work closely with members of the Fund Team. The Business Area Heads included Mr Topfer who was once more described as coordinating the Group’s Corporate Principal Investment and Funds Management activities worldwide.

· the Fund Team operates out of “Babcock & Brown’s UK office and has responsibility for organising the deal stream that will arise from B&B’s global activities and presenting those that meet the fund’s criteria and guidelines to the Fund Investment Committee”;

· the Fund Advisory Board has primary responsibility for fund governments; compliance with the investment mandate; and conflict of interest resolution. The Fund Advisory Board will have visibility of the funds investment decision making process and be required to approve any transactions referred to it by the Fund Investment Committee;

· once an investment has been made by the Fund, “primary responsibility for the operational management of the investment will reside with the Business Area Head and the appropriate Deal Team”.

The Coinmach Transaction

22 In about the middle of 2007 the Partnership invested some €52 million (US$72 million) in the acquisition of an indirect equity stake in a company called Coinmach Service Corporation (“Coinmach”) incorporated in Delaware. Coinmach held interests in entities which carried on business providing laundry equipment and services to multi-family housing properties in the USA. There does not seem to be any doubt that the investment (to which I will refer as “the Coinmach acquisition”) has proved to be unsuccessful. The Partnership has apparently lost most if not all the money it invested.

23 In its Commercial List Statement the plaintiff avers that:

a In the period leading up to June 2007 officers and employees of the first, second and third defendants (“the BB Coinmach Deal Team”) negotiated the Coinmach transaction. The BB Coinmach Deal Team was subject to the control and supervision of a committee of senior executives of the first defendant or the second defendant (“the BB Executive Committee”) through being allocated to one or more business areas under the control and supervision of a Business Area Head who was a member of the BB Executive Committee, and by also being made subject to the overall control and supervision of the group of companies of which the first defendant is the ultimate holding company;

b The acquisition and continued operation of Coinmach was to be financed by a combination of existing bank debt of Coinmach and its subsidiary entities being rolled over, US$400 million being provided by a bank financier with a view to syndication as unsecured notes and US$336 million being provided as equity by entities within or associated with the BB Group (including the Partnership);

c On completion the third defendant was to receive from the equity investors a success fee of 1.5 per cent of Coinmach’s enterprise value. The fee was then expected to be approximately US$21 million;

d The BB Coinmach Deal Team, with the approval of the Investment Committee, negotiated and entered into an agreement dated 10 June 2007 whereby a consortium was formed between the Partnership and certain other BB Group entities, interests associated with senior management of Coinmach and one or more entities within the Royal Bank of Scotland (“RBS”) group to undertake the Coinmach acquisition, with RBS providing finance;

e Pursuant to the consortium agreement, a company named Spin Holdco Inc was incorporated in Delaware, USA as the holding company through which the members of the Coinmach acquisition consortium would acquire Coinmach, and a further company called Spin Acquisition Co Inc was incorporated in Delaware, USA, as a wholly owned subsidiary of Spin Holdco;

f By agreement dated 14 June 2007 between Spin Holdco, Spin Acquisition Co and Coinmach, it was agreed that Coinmach would be merged into Spin Acquisition Co and Spin Holdco would thereby acquire 100 per cent ownership of Coinmach. It was a term of this agreement that if Spin Holdco did not complete the transaction, it was required to pay to Coinmach a cancellation fee of US$17 million;

g After June 2007, there was a prolonged and severe deterioration in credit and equity markets worldwide;

h In or about November 2007, RBS decided in the light of that deterioration that it did not wish to proceed with the Coinmach acquisition and proposed to the BB Coinmach Deal Team that the transaction not be completed, on the basis that RBS would pay the whole of the cancellation fee (“the RBS proposal”);

i The BB Coinmach Deal Team rejected this proposal and instead negotiated with RBS and Coinmach a proposal whereby the Coinmach acquisition would proceed on terms that Coinmach and third defendant would cover the expenses incurred by RBS in any subsequent syndication, the third defendant would reimburse RBS 50 per cent of any losses suffered by RBS in syndicating its equity stake and these obligations would be supported by funds to be put in escrow on completion by Coinmach (from the acquisition price) and by third defendant (from its success fee);

j On 20 November 2007, the Coinmach acquisition was completed. The Partnership invested US$70 million.

Removal of the Fourth Defendant as Managing General Partner

24 Mr Edward Hanson, a resident of London, joined the Group in 1997. Over some years he held a number of different positions within the Group.

25 From about August 2007 the Group apparently began to experience financial difficulties. In August 2008 Mr Green stepped down as chief executive officer of the Group and ceased his role on the Fund Investment Committee. Mr Michael Larkin became chief executive officer.

26 At about this time it appears that the day-to-day management of the Partnership investments fell to Mr Hanson together with Messrs Alexander Stahel (who apparently currently resides in Germany) and Thomas Drastik (who apparently currently resides in Switzerland).

27 On 9 February 2009 Mr Hanson wrote on behalf of the fourth defendant to the third defendant concerning amongst others, the Coinmach Transaction. He asserted, amongst others, that the fourth defendant had not been informed of the RBS proposal that the Coinmach Transaction not proceed and that RBS pay the $17.5 million cancellation fee, and that this meant that the Investment Committee was not given the opportunity to review, in the light of the changed economic conditions, the decision to invest in Coinmach. The letter asserted that if the decision had been reviewed and reversed, the Partnership would not have invested and would not have lost substantially all of the $70 million it had invested.

28 In its Commercial List Statement the plaintiff avers further that:

a From the time of the RBS Proposal, each of the first defendant, the second defendant and the third defendant had an interest or interests in the proposed investment by the Partnership in the Coinmach acquisition going ahead which conflicted or potentially conflicted with the interests of the Partnership;

b At no stage prior to the completion of the Coinmach acquisition was the conflict which had arisen from the RBS Proposal referred to the Advisory Board, nor was the Partnership's fully informed consent to the Coinmach acquisition being completed, despite the existence of that conflict, sought or obtained;

c Each of the following circumstances was material to the proposed investment by the Partnership in the Coinmach acquisition:

i. the preparedness of RBS to pay the whole of the cancellation fee rather than proceed with the Coinmach acquisition;

ii. the preparedness of Coinmach to agree to terms less favourable to it than those initially negotiated in order to permit the Coinmach acquisition to proceed; and

iii. the preparedness of the third defendant to agree to reduce or risk the reduction of its success fee in order to permit the Coinmach acquisition to proceed.

d The BB Coinmach Deal Team did not reject the RBS Proposal and proceed with the Partnership’s investment in the Coinmach acquisition on the revised terms because it had formed a genuine belief that that was in the best interests of the Partnership; and

e In November 2007 the state of the relevant debt and equity markets and the financial position of Coinmach was such that the best interests of the Partnership required the acceptance of the RBS proposal rather than proceeding with an investment in the Coinmach acquisition on the revised terms; by reason of its investment in the Coinmach acquisition, the Partnership suffered substantial loss.

29 On 29 September 2009 Limited Partners of the Partnership requisitioned a meeting to remove the fourth defendant as the Managing General Partner pursuant to cl 14.4.2 of the Partnership Agreement.

30 On 21 October 2009 at a meeting in London (which followed a number of earlier meetings) a resolution was passed by the stipulated majority of Limited Partners requiring that the fourth defendant cease acting as the Managing General Partner.

31 Lawyers representing the fourth defendant (and other members of the Group) and lawyers representing the plaintiff were present at the meeting. The minutes of the meeting indicate that allegations of misconduct by the fourth defendant were to be made. A solicitor from the fourth defendant’s English lawyers (Freshfields) was recorded as saying that a resolution removing the fourth defendant for wilful misconduct should be supported by evidence. The response from a solicitor from the plaintiff’s English lawyers (Slaughter & May) was that sufficient information had already been provided and that the fourth defendant was entitled to sue for its outstanding fees if it wished.

32 The fourth defendant claims (and was then claiming) that it is entitled to some €7.4 million for outstanding management fees and €9.3 million for compensation for termination of its appointment as Managing General Partner.

33 The plaintiff was appointed Managing General Partner of the Partnership. The plaintiff and the fourth defendant disagree on the date that the fourth defendant was removed. That date is relevant to determining the fourth defendant’s entitlements under the terms of the Partnership Agreement. They have reached an accommodation under which the plaintiff accepts appointment from 18 December 2009 and the fourth defendant agrees that if the plaintiff had not as a matter of law already been appointed, any termination compensation is to be calculated as if the fourth defendant’s removal took place in 2010.

34 Some time between 18 September 2009 and 20 November 2009 the board of directors of the fourth defendant, against the background of the allegations being made about its conduct, transferred approximately €11.2 million of the Partnership’s funds to a client account at Slaughter & May.

THE VARIOUS PROCEEDINGS

The Privilege Proceedings

35 Freshfields were instructed to prepare for the handover of responsibility as Managing General Partner from the fourth defendant to the plaintiff to ensure that the Group’s confidential information was protected and to investigate the allegations in relation to Coinmach.

36 According to an affidavit by a senior associate of the firm, documents hosted on the Group’s electronic systems in London were copied onto the solicitors’ servers in London for review. The documents transferred appeared to contain information concerning legal advice in relation to contemplated claims against members of the Group. The documents apparently included legal advice given by Slaughter & May and the plaintiff’s Australian solicitors, Clayton Utz.

37 Freshfields have taken the position that the fourth defendant and other members of the Group are not precluded from access to any of the documents by legal professional privilege available to any client of Slaughter & May. The second defendant, the fourth defendant and three other Group entities have commenced proceedings in the Chancery Division of the High Court of Justice in England seeking a declaration that none of them “is precluded by any legal professional privilege available to any client of Slaughter & May from inspecting any part of the data recorded on the Babcock & Brown Group servers”. I will refer to these proceedings as “the Privilege Proceedings”.

38 The Privilege Proceedings were listed for directions on 11 December 2009 and then on 18 December 2009. They are contested. They were listed for two days’ hearing “to float in the window from 26 to 30 March 2010”. Two of the days in the window were on the weekend. I do not know what relevantly transpired during that period.

The Debt Proceedings

39 On 23 December 2009, Freshfields “on behalf of the Babcock & Brown Group” in accordance with Civil Procedure Rules which apply in England, wrote the plaintiff a pre-action letter (“the pre-action letter”) foreshadowing the institution of proceedings by the fourth defendant to recover the amounts it says are due to it under the Partnership Agreement. The pre-action letter requested a written acknowledgement within 14 days and a full response within 30 days (excluding Bank Holidays in the UK).

40 The pre-action letter conveyed that the fourth defendant was prepared to transfer the assets of the Partnership to the plaintiff on the condition that it agreed that the fourth defendant retains its rights and interests over the transferred assets, or in the alternative that the plaintiff gave an undertaking to preserve assets worth a minimum of €7 million to meet the fourth defendant’s claims for management fees and compensation insofar as those claims are not met from the Fund.

41 The pre-action letter stated that Freshfields’ instructions were absent a satisfactory response to issue proceedings and that the timing of such proceedings depended on the plaintiff’s response. It stated that if the plaintiff met the fourth defendant’s requirements with respect to undertakings in relation to transfer of assets it may be that the proposed proceedings could be deferred until resolution of the Privilege Proceedings.

42 The plaintiff responded by letter dated 30 December 2009. Amongst others it said that it was in the process of appointing English counsel. It indicated a willingness to provide certain undertakings in relation to preservation of Partnership assets and said that its needs for funds to meet Partnership costs and expenses was limiting the scope of the advice that was available to it.

43 On 25 January 2010 Slaughter & May wrote to Freshfields expressing an expectation that a full response to the pre-action letter would be provided by the end of that week.

44 Slaughter & May on behalf of the plaintiff responded to the pre-action letter by letter dated 29 January 2010. The position was taken that since the fourth defendant was no longer the Managing General Partner of the Partnership (having been succeeded by the plaintiff) Slaughter & May were fully entitled to receive instructions from the plaintiff on behalf of the Partnership. The letter referred to cl 17.4 of the Partnership Agreement and the Coinmach Transaction. The 9 February 2009 letter (from Mr Hanson) was extensively quoted. Slaughter & May stated that the facts recounted in that letter disclosed a prima facie case of wilful misconduct, deliberate or reckless disregard of fiduciary duties and gross negligence on the part of directors and employees of Babcock & Brown companies, including Babcock & Brown Limited (the first defendant), Babcock & Brown International Pty Ltd (the second defendant) and Babcock & Brown (the third defendant) for which the fourth defendant was liable.

45 The plaintiff’s complaint was summarised as follows:

Put shortly, in circumstances in which the deterioration in Coinmach’s business prospects between June and November, and the likely outcome of any investment in it, was such as to cause the Royal Bank of Scotland to offer to pay $17.5 million to cancel it, it was grossly negligent to expose the Partnership to needless risk, when it could have pulled out of the transaction at little or not cost. Further, it was a clear breach of fiduciary duty to do so without informing either BBMGP’s (the fourth defendant) management team (Messrs Hanson, Stahel and Drastik) or the independent member of the Investment Committee, Mr. Magan, of the RBS offer.

46 Slaughter & May stated that the RBS offer gave rise to a clear conflict of interest in that whilst the Partnership would be exposed to loss in respect of the whole of its investment “Babcock & Brown was entitled to a fee of $21 million which would substantially cover any loss which could be suffered by the Babcock & Brown Group from the transaction”.

47 The letter stated that the defendants were jointly and severally liable to the Partnership for damages which are likely to be of the order of €52 million and that the Partnership was entitled to set off that claim in extinction of any management or termination fees otherwise payable to the fourth defendant and that in any event no fee was payable because the fourth defendant was removed for reasons falling within cl 14.4.2 of the Partnership Agreement.

48 The letter stated that the plaintiff had taken the view that the real issue is the issue as to the misconduct of Freshfields’ clients and that the plaintiff had issued proceedings in Australia “claiming damage against all the members of the group mentioned above”. It enclosed a copy of process sued out of this Court on 29 January 2010. The letter stated that it should be made clear that whilst it summarised the Partnership case against members of the Babcock & Brown Group arising from the Coinmach Transaction, there were a number of other transactions which may give rise to claims and that neither Slaughter & May nor Clayton Utz had investigated these in sufficient detail to enable them to be pleaded at present.

49 On 1 February 2010 (three days after the plaintiff commenced proceedings in this Court) the second, third and fourth defendants as claimants, commenced proceedings in the Commercial Court of the Queens Bench Division in the High Court of Justice in England (the “Commercial Court”) against “the Partnership” and the plaintiff as defendants. The relief claimed by the second, third and fourth defendants includes:

a a declaration that the fourth defendant’s appointment as General Managing Partner of the Partnership was terminated by no later than 27 November 2009;

b declarations and orders that the fourth defendant is entitled to be paid management fees and compensation fees for termination;

c declarations that the fourth defendant is entitled to indemnities under cl 17.2 of the Partnership Agreement; and

d a declaration that they and each of them:

i. did not breach any duties owed to the plaintiff and the Partnership (or either of them) in relation to the Coinmach Transaction;

ii. have no liability to the plaintiff and the Partnership or either of them (in relation to the Coinmach Transaction), either by reason of cl 17.1 of the Partnership Agreement or otherwise.

50 I shall refer to these proceedings as the “debt proceedings” and to the last-mentioned declarations as the “negative declarations”.

51 On 4 February 2010 the second, third and fourth defendants applied to the Commercial Court for orders that the plaintiff not pursue or take any further steps in pursuit of the proceedings in this Court, that the Partnership or the plaintiff not commence, pursue, procure or assist in the commencement of or pursuit of any further proceedings relating to any disputes arising out of or in connection with the Partnership Agreement or the PPM in any court or tribunal other than the High Court of England and Wales and that the plaintiff terminate without prejudice or otherwise discontinue these proceedings as against the second, third and fourth defendants. I shall refer to that application as the “anti-suit injunction”.

52 A half-day hearing of the anti-suit injunction was scheduled to take place on Thursday 18 March 2010.

The Hearing of the Motions

53 When I fixed the motions for hearing to commence on 15 March 2010 my expectation was that they would be heard in two days and that it would be possible for me to give judgment before the hearing of the anti-suit injunction. I had in mind the following passage of the High Court’s judgment in Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538 at 565 (following upon Lord Templeman’s observations in Spiliada Maritime Corporation v Cansulex Ltd [1987] AC 460), concerning applications to set aside service effected outside the jurisdiction pursuant to leave and applications to stay proceedings:

As regards both kinds of application and subject to one qualification, we respectfully agree with the substance of the advice contained in the speech of Lord Templeman in Spiliada, namely, that the primary judge should "be allowed to study the evidence and refresh" his or her memory of the relevant law "in the quiet [of his or her Chambers] without expense to the parties"; that he or she should not be burdened by unhelpful reference to other decisions on other facts; and "that submissions will be measured in hours and not days". The qualification is that we think that, in the ordinary case, counsel should be able to furnish the primary judge with any necessary assistance by a short, written (preferably agreed) summary identification of relevant connecting factors and by oral submissions measured in minutes rather than hours. There may well be circumstances in which the primary judge may conclude that it is desirable to give detailed reasons balancing the particular weight to be given to the presence or absence of particular connecting factors and explaining why the local forum is or is not a clearly inappropriate one. Ordinarily, however, it will be unnecessary for the primary judge to do more than briefly indicate that, having examined the material in evidence and having taken account of the competing written and oral submissions, he or she is of the view that the proceedings should or should not be stayed on forum non conveniens (i.e "clearly inappropriate forum") grounds.

54 To say the least, my expectations were optimistic. The issues raised by the parties ranged far beyond forum non conveniens. As between the second, third and fourth defendants on the one hand and the plaintiff on the other, every complaint and criticism of the other arguably open (and sometimes not) was sought to be ventilated.

55 By Wednesday 17 March 2010 (the third day) it was clear that the hearing would not finish that day and would most likely occupy the entirety of the next day. I accordingly took up, in particular with counsel for the second, third and fourth defendants, what was proposed with respect to the pending anti-suit injunction hearing. Counsel’s initial position was that his clients intended to persist with it as scheduled. It seemed to me, however, that to do so at a time when the second, third and fourth defendants were moving motions in this Court which, if successful might render the anti-suit injunction either wholly or partly otiose, raised the spectre of an abuse of process. It also entailed the irony that the second, third and fourth defendants were complaining in this Court that the proceedings should properly occur in England whilst they themselves were moving motions which overlapped with their own anti-suit injunction application.

56 The result was that the parties sensibly executed consent orders in the Commercial Court adjourning the anti-suit injunction application to a date not before seven days after the handing down of this judgment.

57 At the close of submissions I requested both sides to provide the Court with a list of factors relevant to the question of whether this jurisdiction is a clearly inappropriate forum for the proceedings. The lists provided went beyond what was contemplated and sought to articulate (or perhaps rearticulate) arguments. The plaintiff sought leave to be heard further. On 25 March 2010 I heard further oral argument which took up most of the afternoon. All in all the hearing of the motions took nearly 4 ½ days.

The Principal Proceedings in this List

58 Proceedings in this List (which is one of a number of Specialist Lists in the Equity Division) are commenced by Summons and Commercial List Statement, rather than by Statement of Claim.

59 The Summons claims the following relief:

1. As against the first, second, third and fourth defendants:

2. Declarations that:

60 A plaintiff is required in Pt C of its Commercial List Statement to plead its contentions and to avoid formality in doing so.

61 For ease of understanding I earlier summarised the plaintiff’s description of the Coinmach acquisition and the circumstances surrounding it.

62 However, as will appear below, each of the defendants made a sustained attack on the plaintiff’s pleaded claim. The attacks ranged from a contention that no reasonable cause of action is disclosed to pleading points.

63 It is therefore appropriate to provide the entire text of Pt C of the plaintiff’s Commercial List Statement. It appears as Schedule “B” to this judgment.

THE MOTIONS

The motion for leave

64 The plaintiff seeks leave pursuant to s 500(2) of the Corporations Act (Cth) to commence and continue these proceedings against the first defendant, together with the usual order that it not be at liberty to enforce any judgment against the first defendant without leave of the Court.

The second defendant’s motion

65 The second defendant seeks orders:

Pursuant to the Uniform Civil Procedure Rules (“UCPR”) Pt 12 r 12.11:

1. setting aside the Summons filed on behalf of the Plaintiff on 29 January 2010 in these proceedings;

2. declining to exercise jurisdiction in these proceedings;

3. staying these proceedings.

Civil Procedure Act

4. staying these proceedings;

5. dismissing these proceedings.

6. that the claims made against the second defendant in the Summons be struck out.

7. declining to exercise jurisdiction in these proceedings;

8. staying these proceedings;

9. that the claims made against the second defendant in the Summons be struck out.

The third and fourth defendants’ motion

66 The third and fourth defendants seek orders:

Pursuant to UCPR Pt 11 r 11.7 and Pt 12 r 12.11:

2 setting aside the service of the Summons on the third defendant and fourth defendant;

3 declaring that this Court has no jurisdiction over the third defendant and fourth defendant in respect of the subject matter of these proceedings;

5 staying these proceedings.

APPROACH TO CONSIDERATION

67 One of the requirements resting upon a party seeking leave to proceed against a company in liquidation is that it must establish that the claim has a solid foundation and gives rise to a serious dispute: Vagrand Pty Ltd (in liq) v Fielding (1993) 10 ACSR 373 at 380. The first defendant resists the grant of leave on the basis (amongst others) that the plaintiff’s claim fails that test.

68 The second defendant is an Australian company on whom service took place in regular fashion within this jurisdiction. It has no challenge to the efficacy of service. Its primary position is that the proceedings should be dismissed (or that the plaintiff’s pleading be struck out without leave to amend) because the plaintiff has failed to disclose a reasonable cause of action against it. Its secondary position is that the Court should stay the proceedings against it or decline to exercise jurisdiction on forum non conveniens or abuse of process grounds.

69 The third and fourth defendants are foreign. The only basis upon which the plaintiff asserts an entitlement to serve them outside Australia is that the proceedings were properly commenced against persons served in New South Wales and the third and fourth defendants are properly joined. They have not entered an appearance in the proceedings. They accordingly proceed only for orders relating to service and jurisdiction. Their primary position is that service upon them was not authorised because the proceedings were not properly commenced against the first and second defendants. It follows, they say, that they were not susceptible to be joined. They both contend that the Court should decline to exercise jurisdiction or stay the proceedings. The fourth defendant relies on the independent effect of the governing law and exclusive jurisdiction clause (cl 18.11) in the Partnership Agreement. Finally, both say that the Court should stay the proceedings against them or decline to exercise jurisdiction on forum non conveniens or abuse of process grounds.

70 Common to each defendants’ position is a challenge to the plaintiff’s pleaded claim. The outcome of those challenges potentially affects all other contentions. I will therefore firstly deal with those challenges.

THE APPLICATIONS FOR DISMISSAL AND STRIKING OUT

The Relevant Uniform Civil Procedure Rules

71 Part 13 r 13.4 UCPR is in the following terms:

13.4 Frivolous and vexatious proceedings

(1) If in any proceedings it appears to the court that in relation to the proceedings generally or in relation to any claim for relief in the proceedings:
(a) the proceedings are frivolous or vexatious, or
(b) no reasonable cause of action is disclosed, or
(c) the proceedings are an abuse of the process of the court,

the court may order that the proceedings be dismissed generally or in relation to that claim.

(2) The court may receive evidence on the hearing of an application for an order under subrule (1).

72 Part 14 r 14.1 UCPR is in the following terms:

14.1 Application

This Part applies to proceedings commenced by statement of claim and to proceedings in which a statement of claim has been filed.

73 Part 14 r 14.28(1) UCPR is in the following terms:

14.28 Circumstances in which court may strike out pleadings

(1) The court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading:

(a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, or
(b) has a tendency to cause prejudice, embarrassment or delay in the proceedings, or

(c) is otherwise an abuse of the process of the court.

The Legal Principles

74 Part 13 r 13.4 UCPR gives the Court a discretionary power to dismiss proceedings where the plaintiff’s case is so hopeless that it cannot possibly succeed. A party will not be denied a contested merits hearing unless the absence of a cause of action is clearly demonstrated. If it is demonstrated that there is a real question to be tried the Court should not determine the matter summarily. Summary dismissal brings the proceedings to end at an interlocutory stage. The test is a demanding one and exceptional caution is required: General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129; Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91; Webster v Lampard (1993) 177 CLR 598; Agar v Hyde (2000) 201 CLR 552.

75 However, the necessity for determination of a difficult question of law is not an insuperable barrier to the grant of summary judgment. The Court may decide such questions if it forms the view that it is appropriate to do so even though extensive legal argument may be necessary to demonstrate the hopelessness of the claim: General Steel Industries Inc v Commissioner for Railways (NSW) at 129; Wickstead v Browne (1992) 30 NSWLR 1.

76 An order to dismiss proceedings is not appropriate where the pleadings are merely ill-expressed or capable of amendment so as to disclose a triable issue. This is particularly so in a specialist list such as this List in relation to complex litigation where frequent amendment is a regular feature: Strong v Simpson (Supreme Court of New South Wales, McLelland J, 31 July 1992, unreported).

77 Part 14 UCPR applies only to proceedings commenced by Statement of Claim. Although these proceedings were by Summons the Court has, as a necessary incident of its jurisdiction, the power to control its own proceedings and procedure in the same way as if the proceedings were conducted on pleadings in the strict sense. The Practice Note which applies to this List requires a plaintiff to set out its contentions in summary form. The contentions should avoid formality, but must nevertheless comply with the fundamental requirement of disclosing a reasonable cause of action. The principle that the Court has as an incident of its jurisdiction the power to, and will, strike out a pleading which discloses no reasonable cause of action or defence, or which has a tendency to cause prejudice, embarrassment or delay in the proceedings or which otherwise is an abuse of the process of the Court, applies to a Commercial List Statement in this List with no less force albeit Pt 14 UCPR does not strictly apply: Ucak v Avante Developments Pty Ltd [2007] NSWSC 367. As with summary dismissal, the power to strike out pleadings because they disclose no reasonable cause of action should only be exercised in a plain and obvious case.

The Challenges to the Plaintiff’s Claim as Pleaded

78 The first defendant puts that the Commercial List Statement fails to plead any discernible basis upon which it could be held liable for the conduct of individuals and committees identified. It puts that it was a non-operating holding company. It puts that none of the individuals named as members of the BB Coinmach Deal Team, the BB Executive Committee or as a Business Head is alleged to have been (nor as a matter of fact was) an officer or employee of the first defendant.

79 The second, third and fourth defendants put that the Commercial List Statement should be dismissed or struck out because:

a. the plaintiff has no standing to bring the proceedings for the relief claimed;

b. it discloses no reasonable cause of action in relation to claims of breach of fiduciary duty;

c. it discloses no reasonable cause of action in relation to claims of breach of duty of care;

d. it discloses no reasonable cause of action in relation to what is essentially a vicarious liability claim; and

e. it contains unparticularised allegations of fraud.

80 The first defendant adopted the position of the second, third and fourth defendants.

The Plaintiff’s Standing

81 Paragraph C48 of the Commercial List Statement avers as follows:

The plaintiff brings these proceedings as Managing General Partner of the Investment Partnership pursuant to the Limited Partnership Agreement and, to the extent necessary, as representative of the Investor Partners pursuant to rule 7.4 of the Uniform Civil Procedure Rules 2005 (NSW).

82 The plaintiff did not seek to uphold standing on the basis of Pt 7 r 7.4 UCPR. That rule concerns representative proceedings.

83 Apart from pleading in par C34 that the fourth defendant was removed as Managing General Partner and that the plaintiff was elected as the new Managing General Partner, the plaintiff does not plead any facts or circumstances which establish its standing to bring these proceedings for loss not suffered by it. Its claim is liable to be struck out for this reason alone.

84 However, in oral and written argument the plaintiff elucidated how it says it has standing. (The question may not in strict legal terms be one of standing. The parties however, referred to the plaintiff’s claimed entitlement to sue for damages suffered by the Partnership as standing and I shall use the same nomenclature.) What it says can be distilled into the following propositions:

a the claims it brings (or more accurately the choses of action which seeks to motivate) are “partnership assets”;

b on reconstitution of the partnership under cl 14.3 of the Partnership Agreement (upon removal of the fourth defendant as Managing General Partner and appointment of the plaintiff as Managing General Partner) the partnership assets of the “old” partnership passed to the “new” partnership;

c the claims therefore passed to the new partnership, of which the plaintiff is the Managing General Partner;

d insofar as those claims are equitable choses of action which may be assigned without formality they have already passed. Insofar as the fourth defendant either alone or together with the old partners has a right to enforce “the legal cause of action” (presumably the tort claim) that right is held by the plaintiff on trust for the new partnership and the plaintiff is entitled to enforce it having joined the fourth defendant to the proceedings;

e under cl 5.3.1 (h) of the Partnership Agreement the plaintiff has full power and authority on behalf of the Partnership to commence, conduct, settle or defend litigation that pertains to the Partnership or to any of the partnership’s assets.

85 In my view the plaintiff’s assertion of standing has fundamental difficulties.

86 It brings claims in equity for breach of fiduciary duties and at law for breach of a duty of care.

87 Both according to the laws of this country and of the United Kingdom, a partnership has no separate personality from the partners or members of the firm. The English position was established by the evidence of Ewan McKendrick, a Professor of Law and a Pro-Vice Chancellor in the University of Oxford, called by the second, third and fourth defendants. The duties alleged to have been breached could accordingly only have been owed to the partners individually. They cannot be owed to a partnership. It follows that claims arising from the breach of such duties cannot, as the plaintiff suggests, be partnership property.

88 This is starkly the case with respect to the fourth defendant. It was at all material times, and remains by virtue of cl 14.4.3 of the Partnership Agreement, a partner. It cannot have claims against itself, nor can it have any interest in a claim against itself. Such claims manifestly cannot be partnership property.

89 Clause 5.3.1(h) of the Partnership Agreement does not assist the plaintiff. That provision confers power and authority “on behalf of the Partnership” to commence or conduct litigation that pertains to the Partnership or the Partnership assets. The claims sought to be brought here are not on behalf of the Partnership (meaning all of the partners). At the lowest they are not brought on behalf of the fourth defendant. They could not, because they include claims against it.

90 The plaintiff’s proposition that on its accession to the role of Managing General Partner the claims (or choses in action) passed to it, is in effect a submission that an assignment occurred. There are a number of difficulties with this proposition.

91 Firstly, the Partnership Agreement itself does not legislate for any such assignment. Clause 14.3 provides for the continuation of the Partnership by its reconstitution and the continuation of its business. It neither seeks to achieve, nor could it achieve, an assignment of rights such as those under consideration.

92 Secondly, the rights in question are bare rights of action. They are either not assignable at all, or if they are, they are only assignable where the assignee has a commercial interest in enforcing the cause of action for its own benefit: National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514 at 539; Trendtex Trading Corp v Credit Suisse [1982] AC 679. The plaintiff does not now have (and has never had) any commercial interest in those claims which would receive ancillary support from such an assignment: National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd at 540.

93 It follows that the plaintiff has no standing to make the claims it makes.

94 The plaintiff has not established a solid foundation for its claim against the first defendant. Leave to proceed against the first defendant must therefore be refused.

95 It was not suggested that there might be further facts which could be relied upon to establish a claim which the plaintiff, as opposed to the Limited Partners at the relevant time or times, could bring. This is accordingly a case where summary dismissal is appropriate.

96 The proceedings against the second defendant must be dismissed and the Summons against the third and fourth defendants must be set aside.

97 Although these conclusions render it unnecessary to consider other aspects of the motions, I propose nevertheless to consider whether, on the hypothesis that the plaintiff had established standing to bring these proceedings, I would set aside service on the third and fourth defendants, decline to exercise jurisdiction or stay the proceedings.

Attribution of Liability to the First Defendant

98 The first defendant makes two distinct challenges to the plaintiff’s pleaded case. Firstly, it puts that the pleading provides no foundation for attributing to it liability for the acts and omissions of other individuals and entities. Secondly, it puts that the plaintiff’s case is hopeless because it is clear beyond any doubt that the first defendant was only a holding, and not an operating, company and therefore could not have engaged in any conduct which resulted in liability on its part.

99 For the following reasons, both of these submissions are unsustainable.

100 As to the pleading point, par C5 of the Commercial List Statement alleges that the global activities of the Group were managed by a committee of senior executives who were employees of the first or second defendants and that the activities of each of the entities within the Group were managed by Business Area Heads who were members of the Executive Committee and were subject to the overall control of the chief executive of the Group. Paragraph C17 alleges that officers and employees of the first defendant negotiated the Coinmach acquisition. The particulars to par C17 identify members of the BB Coinmach Deal Team, but do not do so exhaustively. Paragraph C36 asserts that the first defendant was acting through the BB Coinmach Deal Team, as does par C38. This is sufficient assertion that the acts alleged were those of the first defendant whether on the basis of agency strictly speaking or otherwise. Enough is pleaded of the first defendant’s participation to raise a triable issue.

101 As to the non-operating company point, a substantial body of material before the Court, even at this preliminary stage, sufficiently discloses a triable issue that the global activities of the Group did not have regard to the individual identity of the numerous corporations within the Group. Various boards and committees appear to have straddled different corporations and designated individuals appear to have coordinated Group activities on behalf of numerous entities worldwide. It might in the end even be said that this was used as an investment selling point. One example of the blurring of corporate personalities is the definition in the PPM of Babcock & Brown as the second defendant and its wholly owned operating subsidiaries while other some references to Babcock & Brown in the document clearly comprehend the first defendant. Albeit that the first defendant was a holding company rather than an operating one, the proposition that it did not lead a monastic existence so far as Group activities were concerned is hardly one which at this early stage can be described as hopeless. Factual issues which cannot be resolved at this preliminary stage are involved.

102 I would therefore not uphold the first defendant’s submission that the plaintiff has not sufficiently identified a basis for the attribution to it of liability for breach of fiduciary duty or in tort, or that the plaintiff’s case in those respects is hopeless.

Breach of Fiduciary Duty or Liability in Tort of the Second, Third and Fourth Defendants

103 The second, third and fourth defendants put that the Commercial List Statement does not identify, let alone plead, the basis upon which the first, second and third defendants were in a fiduciary relationship with the Partnership. They put that there is no allegation that the BB Coinmach Deal Team was their agent. They put that the only apparent basis pleaded for the existence of a fiduciary duty is that certain officers or employees were members of a team to which was delegated the completion of the Coinmach Transaction. They also complain that the Commercial List Statement pleads a failure to disclose information to “the proper organ of the investment partnership” without identifying who or what that organ is.

104 Paragraph C36 of the Commercial List Statement pleads as follows:

In acting (through the BB Coinmach Deal Team) on behalf of the Investment Partnership to effect the Investment Partnership's investment in the Coinmach Acquisition, each of BB Ltd, BB International and BBUS LP owed fiduciary obligations to the Investment Partnership:

(a) not to permit itself to be placed in a position where its interests or the interests of other entities within the BB Group conflicted or potentially conflicted with the interests of the Investment Partnership unless there was fully informed consent to it so acting;

(b) to disclose to the proper organ of the Investment Partnership all information in its possession which was material to the proposed investment by the Investment Partnership in the Coinmach Acquisition; and

(c) to exercise its functions on behalf of the Investment Partnership in a manner which it genuinely considered was in the best interests of the Investment Partnership.

105 Paragraph C37 of the Commercial List Statement pleads as follows:

Each of BB Ltd, BB International and BBUS LP breached those obligations, in that:

(a) each of BB Ltd, BB International and BBUS LP (through the BB Coinmach Deal Team and the BB Executive Committee) was responsible for effecting the Investment Partnership's investment in the Coinmach Acquisition and failed to obtain fully informed consent from the Investment Partnership to the conflict referred to in paragraph C27 above, thereby breaching the fiduciary obligation referred in paragraph C36(a) above;

(b) each of BB Ltd, BB International and BBUS LP knew or was on notice (through the BB Coinmach Deal Team and the BB Executive Committee) of the Pre-Completion Circumstances prior to the completion of the Coinmach Acquisition on 20 November 2007 and failed to disclose those Pre-Completion Circumstances to the proper organ of the Investment Partnership, thereby breaching the fiduciary obligation referred to in paragraph C36(b) above; and

(c) each of BB Ltd, BB International and BBUS LP was responsible (through the BB Coinmach Deal Team and the BB Executive Committee) for rejecting the RBS Proposal and effecting the Coinmach Acquisition on the revised terms referred to in paragraph C25 above where it had not formed a genuine belief that such actions were in the best interests of the Investment Partnership, thereby breaching the fiduciary obligation referred to in paragraph C36(c) above.

106 Paragraph C38 of the Commercial List Statement pleads as follows:

Further, in acting (through the BB Coinmach Deal Team) on behalf of the Investment Partnership to effect the Investment Partnership's investment in the Coinmach Acquisition, each of BB Ltd, BB International and BBUS LP owed to the Investment Partnership and the Managing General Partner fiduciary obligations and obligations in tort to exercise reasonable care in so acting.

107 Paragraph C39 of the Commercial List Statement pleads as follows:

Each of BB Ltd, BB International and BBUS LP breached those obligations, in that each of BB Ltd, BB International and BBUS LP knew or ought to have known (through the BB Coinmach Deal Team and the BB Executive Committee) that the best interests of the Investment Partnership required the acceptance of the RBS Proposal rather than effecting the Coinmach Acquisition on the revised terms referred to in paragraph C25 above.

108 I consider that the pleading makes it sufficiently clear both in relation to the asserted breach of fiduciary duty and the asserted breach of a duty of care that the actions of the BB Coinmach Deal Team (whoever they might have been) are alleged to have been the actions of the second, third and fourth defendants, whether on the basis of agency strictly speaking or otherwise. Paragraphs C36 and C38 plead the asserted fiduciary obligations and duty of care, and paragraphs C37 and C39 their breach.

109 It is to be remembered that the categories of fiduciary relationships are not closed. In Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 at 96-7 Mason J made it clear that the critical feature of fiduciary relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The pleading sufficiently identifies the circumstances from which such a duty is asserted to have arisen. It also sufficiently identifies the alleged breach of that duty. The same can be said of the pleading of a duty of care and its breach.

110 Additionally, it would be inappropriate summarily to dismiss or strike out the claim for breach of duty of care (or for that matter the claim for breach of fiduciary duty) because as the High Court remarked in Agar v Hyde at 578:

The result is that frequently the conventional form of pleading in an action of negligence will not reveal the alleged duty with sufficient clarity for a court considering an application for summary termination of the proceeding to be sure that all of the possible nuances of the plaintiff's case are revealed by the pleading. Further, and no less importantly, any finding about duty of care will often depend upon the evidence which is given at trial. Questions of reliance or knowledge of risk are two obvious examples of the kinds of question in which the evidence given at trial may take on considerable importance in determining whether a defendant owed the plaintiff a duty of care.

Other Pleading Complaints

111 A series of other complaints are levelled at the pleading against the fourth defendant. It is put that the nature and extent of the asserted fiduciary obligations are not identified, that there is no identification of the proper organ of the Partnership to which disclosure was to be made, that there is no pleaded factual basis for some of the allegations, that (save for par C41(b) and par C41(c)) it is not pleaded that the BB Coinmach Deal Team was the fourth defendant’s agent for relevant purposes and that where as agency is pleaded the pleading fails to disclose what is meant by the words “through the agency of” the various entities or the BB Coinmach Deal Team. It is put that par C44 is embarrassing because it does not explain how “somebody else’s interest in the Success Fee” gives rise to a conflict of interest on the part of the fourth defendant or otherwise is a conflict of interest arising in the management of the Partnership. It is put that to the extent to which there is reliance by the plaintiff on vicarious liability for tort claims, or purported reliance on vicarious liability for fiduciary claims, there is no pleading that the underlying individuals owed or breached any duty. It is put that there is no pleading of the facts necessary to impose a vicarious liability on any of the defendants for any breach of duty.

112 I do not consider that any of these complaints is of substance. Whether or not it is ultimately made out at a final hearing, the Commercial List Statement discloses, in intelligible albeit informal terms the fundamental gravamen of each of the plaintiff’s complaints against the second, third and fourth defendants. At the heart of them is the blurring of individual companies within the Group to which I have earlier referred. The plaintiff identifies in each case the origin of the asserted duty, the extent of the duty and its breach. The reference to the proper organ of the Partnership may well involve questions of fact and would, if the proceedings were to have continued, properly have been the subject of additional particularisation.

113 In my view as against each of the defendants the Commercial List Statement sufficiently pleads fiduciary duties, a duty of care and breach of those duties.

114 So far as vicarious liability for tort and breach of fiduciary duty is concerned, the plaintiff did not seek to uphold the pleading on the basis that claims of that nature have been pleaded. It is accordingly not necessary to deal further with this challenge.

Fraud

115 The defendants put that par C45 of the Commercial List Statement is embarrassing because it contains an unparticularised allegation of fraud and other serious misconduct. This submission is unsustainable. Paragraph C45 avers no more than that the breaches earlier identified in the pleading fall within the meaning of the words “fraud, gross negligence, wilful misconduct, bad faith or reckless disregard of its obligations and duties as general partner of the Partnership”. This averment does not reach higher than the earlier allegations of breach.

Conclusion

116 It follows that if the plaintiff had established standing I would not have dismissed the proceedings, struck out the Commercial List Statement, set aside service or declined to exercise jurisdiction on the basis that it fails to disclose a cause of action or that it is embarrassing.

THE EXCLUSIVE JURISDICTION CLAUSE

117 Section 67 of the Civil Procedure Act 2005 (NSW) provides as follows:

67 Stay of proceedings

Subject to rules of court, the court may at any time and from time to time, by order, stay any proceedings before it, either permanently or until a specified day.

118 Both in the United Kingdom and in this country, where parties to a contract have agreed by an exclusive foreign jurisdiction clause to submit to the exclusive jurisdiction of a foreign court, such a clause does not operate to exclude the forum court’s jurisdiction. However, the court will hold the parties to their bargain, and grant a stay of proceedings, unless the party seeking that the proceedings be heard can show that there are strong reasons against doing so. There is a strong bias in favour of granting a stay of proceedings in the event that there has been a submission to the exclusive jurisdiction of a foreign forum. In considering such an application the court should take into consideration all the circumstances of the particular case, but the application is not to be assimilated to cases where a stay is sought on the principle of forum non conveniens, nor is it a matter of mere convenience: see Aggeliki Charis Compania Maritima SA v Pagnan SpA (The Angelic Grace) [1995] I Lloyd’s Rep 87 at 97; Huddart Parker Ltd v The Ship “Mill Hill” (1950) 81 CLR 502 at 508–509; Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197; FAI General Insurance Co Ltd v Ocean Marine Mutual Protection and Indemnity Association Ltd (1997) 41 NSWLR 117; (1997) 41 NSWLR 559; Akai Pty Ltd v People’s Insurance Company Ltd (1996) 188 CLR 413; Incitec Ltd v Alkimos Shipping Corporation [2005] FCA 191; Owners of cargo on vessel Eleftheria v Owners of Ship Eleftheria [1969] 2 All ER 641 at 645; Compagnie des Messageries Maritimes v Wilson (1954) 94 CLR 577 at 582, 585, 589–91.

119 The proper construction of cl 18.11 of the Partnership Agreement is a matter for the proper law of the contract, in this case the law of England: Recyclers of Australia Pty Limited v Hettinga Equipment Inc (2000) 100 FCR 420 at 430-4.

120 Terms such as “arising out of” or “in connection with” in such provisions are given wide operation. In Fiona Trust & Holding Corporation v Privalov [2008] 1 Lloyd’s Rep 254 at 256 Lord Hoffmann said:

121 A similar approach has been taken in this country. In Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 at 165, Gleeson CJ said:

When the parties to a commercial contract agree, at the time of making the contract, and before any disputes have yet arisen, to refer to arbitration any dispute or difference arising out of the agreement, their agreement should not be construed narrowly. They are unlikely to have intended that different disputes should be resolved before different tribunals, or that the appropriate tribunal should be determined by fine shades of difference in the legal character of individual issues, or by the ingenuity of lawyers in developing points of argument.

122 The fourth defendant submits that the proceedings in this Court have been commenced by the plaintiff in breach of, and contrary to, cl 18.11 of the Partnership Agreement.

123 It puts that on its proper construction, the plaintiff’s covenant covers actions and proceedings arising out of or in connection with the Partnership Agreement or the PPM, or the acquisition of Commitments brought not only against parties to the Partnership Agreement, but as against third parties as well. In support of this extended ambit, it relies on Donohue v Armco Inc [2002] 1 Lloyd’s Rep 425. The speech of Lord Scott at par 60-61 to the following effect was cited:

60. There is a point of construction of the exclusive jurisdiction clause that it is convenient to deal with at this point. It is accepted that the clause is not restricted to contractual claims. A claim for damages for, for example, fraudulent misrepresentation inducing an agreement containing an exclusive jurisdiction clause in the same form as that with which this case is concerned would, as a matter of ordinary language, be a claim in tort that arose “out of or in connection with” the agreement. If the alleged fraudulent misrepresentation had been made by two individuals jointly, of whom one was and the other was not a party to the agreement, the claim would still be of the same character, although only the party to the agreement would be entitled to the benefit of the exclusive jurisdiction clause. The commencement of the claim against the two alleged tortfeasors elsewhere than in England would represent a breach of the clause. The defendant tortfeasor who was a party to the agreement would, absent strong reasons to the contrary, be entitled to an injunction restraining the continuance of the foreign proceedings. He would be entitled to an injunction restraining the continuance of the proceedings not only against himself but also against his co-defendant. The exclusive jurisdiction clause is expressed to cover “ any dispute which may arise out of or in connection with” the agreement. It is not limited to “any claim against” the party to the agreement. To give the clause that limited construction would very substantially reduce the protection afforded by the clause to the party to the agreement. The non-party, if he remained alone as a defendant in the foreign proceedings, would be entitled to claim from his co-tortfeasor a contribution to any damages awarded. He could join the co-tortfeasor, the party entitled to the protection of the exclusive jurisdiction clause, in third party proceedings for that purpose. The position would be no different if the claim were to be commenced in the foreign Court with only the tortfeasor who was not a party to the exclusive jurisdiction clause as a defendant. He would be able, and well advised, to commence third party proceedings against his co-tortfeasor, the party to the exclusive jurisdiction clause.

61. In my opinion, an exclusive jurisdiction clause in the wide terms of that with which this case is concerned is broken if any proceedings within the scope of the clause are commenced in a foreign jurisdiction, whether or not the person entitled to the protection of the clause is joined as defendant to the proceedings. An injunction restraining the continuance of the proceedings would not, of course, be granted unless the party seeking the injunction, being someone entitled to the benefit of the clause, had a sufficient interest in obtaining the injunction. It would, I think, be necessary for him to show that the claim being prosecuted in the foreign jurisdiction was one which, if it succeeded, would involve him in some consequential liability. It would certainly, in my opinion, suffice to show that if the claim succeeded he would incur a liability as a joint tortfeasor to contribute to the damages awarded by the foreign Court.

124 His Lordship’s analysis was followed by Norris J in Winnetka Trading Corporation v Julius Baer International [2008] EWHC 3146 (Ch) and by Teare J in Morgan Stanley & Co International PLC v China Haisheng Juice Holdings Co Ltd [2009] EWHC 2409 (Comm).

125 The plaintiff accepts that the fourth defendant’s claim for entitlements under the Partnership Agreement arises out of or is in connection with the Partnership Agreement. It puts, however, that neither its own claim for damages nor the second and third defendants’ claims reflected in the negative declarations arise out of or are in connection with the Partnership Agreement, the PPM or the acquisition of Commitments.

126 The plaintiff puts that on its proper construction, cl 18.11 does not extend to a suit, action or proceedings other than one between parties to the Partnership Agreement. It puts that there is nothing in the language of the provision to suggest that the parties intended the clause to extend to disputes with non-parties. It puts that cl 18.15 makes it clear that third parties acquire no rights under the Partnership Agreement. It relies on the following observation by Rix J in Credit Suisse First Boston (Europe) Ltd v MLC (Bermuda) Ltd [1999] 1 Lloyd’s Rep 767 at 777:

[I]t seems to me to be far-fetched to regard ‘any disputes’ as covering disputes between MLC and any one other than MLC’s contract partner under the purchase agreements, namely CS Europe. Clause 5.2 is part of a bilateral agreement between a seller and a buyer, and the disputes to which such an agreement may give rise are prima facie bilateral disputes. Indeed, it is I would have thought axiomatic that, at any rate in the absence of plain language to the contrary, a contract seeks neither to benefit nor to prejudice non-parties: even where such plain language is used, it is black-letter law that the non-party can himself neither take the benefit nor suffer the burden of the contract.

127 The second, third and fourth defendants called Adrian Briggs, a professor of international law in the University of Oxford to give evidence on the construction of cl 18.11 under English law. His opinion is that it would be open to an English Court to interpret cl 18.11 as a promise according to which the parties to the Partnership Agreement promised each other that they would bring proceedings against each other and that they would bring proceedings against any other person sued in respect of the same broad transaction, in England and only in England.

(b) the third defendant Babcock & Brown LP ("BBUS LP"), a limited partnership formed under the laws of Delaware, USA, and being, pursuant to those laws, a separate legal entity entitled to hold property and to sue and be sued as such; and

(c) Babcock & Brown Investment Management Limited ("BB Investment Management"), a company incorporated in the United Kingdom.

C4. At all material times:

(a) BB International was the holding company for all of the operational entities within the BB Group and was a majority-owned subsidiary of BB Ltd; and

(b) BBUS LP was the principal operating entity for the USA within the BB Group and was an indirectly wholly-owned subsidiary of BB International.

C5. At all material times:

(a) the global activities of the BB Group were managed by a committee of senior executives who were employees or officers of BB Ltd or BB International (the "BB Executive Committee"); and

(b) the activities of each of the entities within the BB Group were managed by the BB Executive Committee through being allocated to one or more "Business Areas" under the control and supervision of a "Business Area Head" who was a member of the BB Executive Committee and by also being made subject to the overall control and supervision of the "Chief Executive" of the BB Group, who was also a member of the BB Executive Committee.

C6. At all material times, the Limited Partnerships Act 1907 (UK) has provided that:

(a) a partnership having certain characteristics ("English Limited Partnership") may be formed in the manner and subject to the conditions provided by the Act;

(b) an English Limited Partnership consists of one or more partners called general partners who shall be liable for all debts and obligations of the partnership and one or more persons called limited partners who shall at the time of entering into the partnership contribute a certain amount of capital or property, and who shall not be liable for the debts or obligations of the partnership beyond the amount so contributed;

(c) every such partnership must be registered in accordance with the provisions of the Act; and

(d) a limited partner shall not take part in the management of the business of the Partnership, and shall not have power to bind the partnership.

C7. In and after January 2005, BB Investment Management issued to certain investors a memorandum ("the Private Placement Memorandum"). That Memorandum solicited investment in an English Limited Partnership ("the Investment Partnership") which was to be established with a view to carrying on business as an investor in transactions originated by the BB Group. The Investment Partnership would consist of a general partner who would manage the business of the Partnership ("Managing General Partner") and limited partners who would be the investors ("the Investor Partners").

C8. The following were terms of the Private Placement Memorandum:

(a) The Managing General Partner would be a newly created entity owned by the BB Group.

(b) The Investment Partnership would make its investments from transactions originated by the BB Group.

(c) The Investment Partnership's investment decisions would be made by committee comprising four BB Group executives and an independent chairman ("the Investment Committee"), overseen by an advisory board comprising Investor Partner representatives and independent persons with expertise in investment in the investment sectors in which the Investment Partnership was expected to operate ("the Advisory Board").

(d) There would be a team of employees or executives operating out of the BB Group's UK office ("the Fund Team") which would be responsible for administering the Investment Partnership and for organising the stream of proposed transactions and presenting such of them as met the Investment Partnership's criteria and guidelines for consideration by the Investment Committee.

(e) Each proposed transaction would be supervised by the relevant BB Group Business Area Head who would work closely with members of the Fund Team to review and structure transactions appropriate to the Investment Partnership's criteria.

(f) The Advisory Board would have primary responsibility for (among other things) governance of the Investment Partnership and conflict of interest resolution. It would be required to approve any proposed investments referred to it by the Investment Committee. The Investment Committee would be required to refer certain types of proposed investment to the Advisory Board.

(g) All investments by the Investment Partnership (even if approved by the Advisory Board) would have to be approved by unanimous decision of the Investment Committee.

C9. The Investment Partnership was constituted by agreement dated 17 May 2005 between two entities within the BB Group. Its name was initially "Babcock & Brown Capital Partners" and later "Babcock & Brown Global Partners".

C10. At all material times, the Investment Partnership has been registered as an English Limited Partnership under the Limited Partnerships Act 1907 (UK).

C11. The fourth defendant is a company incorporated in the Cayman Islands the name of which was formerly BBCP Managing General Partner Limited and is now BBGP Managing General Partner Limited ("BBMGP"). At all material times, BBMGP has been a member of the BB Group.

C12. The terms constituting the Investment Partnership were amended and restated by agreement dated 1 July 2005 between BBMGP as Managing General Partner and two other entities within the BB Group ("the Limited Partnership Agreement").

C13. The following were terms of the Limited Partnership Agreement:

(a) By clause 1.2, the purpose of the Investment Partnership was to carry on the business of investment and in particular to identify, research, negotiate and monitor the progress of investments, and the Investment Partnership might, acting through the Managing General Partner or persons authorised on behalf of the Investment Partnership pursuant to the Limited Partnership Agreement, execute, deliver and perform all contracts and other undertakings and engage in all activities and transactions as might in the opinion of the Managing General Partner be necessary or advisable in order to carry out the purposes and objectives of the Investment Partnership, subject to and in accordance with the provisions of the Limited Partnership Agreement and the investment policy specified in the Private Placement Memorandum ("the Investment Policy").

(b) By clauses 5.1 and 5.3.1, the Managing General Partner had exclusive responsibility for the operation of the Investment Partnership and the management and control of its business and affairs and should take all investment decisions on behalf of the Investment Partnership, including in particular the identification, evaluation and negotiation of investment opportunities and the preparation and approval of investment agreements.

(c) By clause 9, the Managing General Partner was entitled to certain management fees.

(d) By clause 14, in the event of removal otherwise than for fraud, gross negligence, wilful misconduct, bad faith or reckless disregard of its obligations and duties as general partner, the Managing General Partner was entitled to a payment for compensation for loss of office ("Termination Payment").

(e) By clause 16.3.3, the Advisory Board was to be consulted on conflicts of interest arising in the management of the Investment Partnership.

(f) The Investment Partnership was to be conducted in accordance with the Limited Partnership Agreement and the Private Placement Memorandum, save that by clause 18.4.3 the terms of the Limited Partnership Agreement were to prevail in the event of any conflict.

C14. In July 2005, the Investment Partnership was closed to further investment, by which time approximately €371.7 million had been subscribed to the Investment Partnership by Investor Partners.

C15. From about July 2005 onwards, the Investment Partnership carried on business as an investor with a Fund Team, an Investment Committee, and an Advisory Board as contemplated in the Private Placement Memorandum and the Limited Partnership Agreement.

Particulars

(a) At all material times Mr Edward Hanson, a BB Group executive based in its London office, had immediate responsibility for the operations of the Fund Team, including the corporate affairs of BBMGP. Those operations were subject to the direction and control of the BB Executive Committee at least through the responsible Business Area Head. From about October 2007, the responsible Business Area Head was Mr Robert Topfer, the BB Group Global Head of Corporate Finance.

(b) The Investment Committee initially comprised Mr George Magan (independent chairman), Mr James Babcock (BB Group Executive Chairman), Mr Phillip Green (BB Group Chief Executive), Mr Michael Maxwell (BB Group Global Head of Real Estate) and Mr Hanson. Mr Maxwell subsequently resigned his position as BB Group Global Head of Real Estate but remained a member of the Committee. In about October 2007, Mr Hanson was instructed by Mr Topfer to take the necessary steps to have him appointed to the Committee.

(c) The Advisory Board consisted of certain Investor Partner representatives and sectoral investment experts as contemplated by the Private Placement Memorandum and the Limited Partnership Agreement.

(d) Further particulars will be provided, if required, after discovery.

C16. Prior to the events described below, Coinmach Service Corporation ("Coinmach"), a company incorporated in Delaware, USA, was the holding company of a group of entities which carried on the business of providing laundry equipment and services for multi-family housing properties in the USA.

C17. In the period leading up to June 2007, certain officers and employees of BB Ltd, BB International or BBUS LP ("the BB Coinmach Deal Team") negotiated a proposal for the acquisition of Coinmach ("the Coinmach Acquisition") on the basis that:

(a) 100% of the issued shares of Coinmach would be acquired at US$13.55 per share ("Acquisition Price");

(b) the acquisition and continued operation of Coinmach would be financed by:

(i) existing bank debt of Coinmach and its subsidiary entities being rolled over;

(ii) US$400 million being provided by a bank financier with a view to syndication as unsecured notes;

(iii) US$336 million being provided as equity by entities within or associated with the BB Group (including the Investment Partnership);

(c) an agreement to acquire Coinmach would be signed in June 2007 with the purchase to be completed some months later; and

(d) on completion BBUS LP would receive from the equity investors a fee ("Success Fee") of 1.5% of Coinmach's enterprise value (then expected to be approximately US$21 million).

Particulars

The BB Coinmach Deal Team included Berenice Talintyre, Jake Haines, Justin Levi and Sri Ramachandran. The operations of the Team were subject to the control and supervision of the BB Executive Committee, at least through Mr Topfer and Mr Richard Umbrecht, the US Head of Special Products. Further particulars will be provided, if required, after discovery.

C18. In early June 2007, the Investment Committee approved a proposal originated by the BB Coinmach Deal Team whereby the Investment Partnership was to invest approximately €52 million (US$70 million) in equity in the Coinmach Acquisition, subject to final merger and funding documentation being satisfactory to the BB Coinmach Deal Team, and delegated the completion of the transaction to the BB Coinmach Deal Team on this basis.

C19. Pursuant to this approval, the BB Coinmach Deal Team negotiated and entered into an agreement dated 10 June 2007 ("Consortium Agreement") whereby a consortium was formed between the Investment Partnership and certain other BB Group entities, interests associated with senior management of Coinmach and one or more entities within the Royal Bank of Scotland group ("RBS") (collectively, the "Coinmach Acquisition Consortium") to undertake the Coinmach Acquisition, with RBS providing finance.

C20. Pursuant to the Consortium Agreement, a company named Spin Holdco Inc ("Spin Holdco") was incorporated in Delaware, USA as the holding company through which the members of the Coinmach Acquisition Consortium would acquire Coinmach, and a further company called Spin Acquisition Co Inc ("Spin Acquisition Co") was incorporated in Delaware, USA, as a wholly owned subsidiary of Spin Holdco.

C21. By agreement dated 14 June 2007 between Spin Holdco, Spin Acquisition Co and Coinmach ("Coinmach Merger Agreement"), it was agreed that Coinmach would be merged into Spin Acquisition Co and Spin Holdco would thereby acquire 100% ownership of Coinmach.

C22. It was a term of the Coinmach Merger Agreement that if Spin Holdco did not complete the transaction, it was required to pay to Coinmach a fee of US$17 million ("Cancellation Fee").

Particulars

Clauses 6.3(c) and 6.5(e) of the Coinmach Merger Agreement.

C23. After June 2007, there was a prolonged and severe deterioration in credit and equity markets worldwide.

C24. In or about November 2007, RBS decided in the light of that deterioration that it did not wish to proceed with the Coinmach Acquisition and proposed to the BB Coinmach Deal Team that the Coinmach Merger Agreement not be completed, on the basis that RBS would pay the whole of the Cancellation Fee ("the RBS Proposal").

C25. The BB Coinmach Deal Team rejected the RBS Proposal and instead negotiated with RBS and Coinmach a proposal whereby the Coinmach Acquisition would proceed on terms that:

(a) Coinmach and BBUS LP would cover the expenses incurred by RBS in any subsequent syndication;

(b) BBUS LP would reimburse RBS 50% of any losses suffered by RBS in syndicating its equity stake; and

(c) these obligations would be supported by funds to be put in escrow on completion by Coinmach (from the Acquisition Price) and by BBUS LP (from the Success Fee).

C26. On 20 November 2007, the Coinmach Acquisition was completed on those terms. The Investment Partnership invested US$70 million in the Coinmach Acquisition.

C27. From the time of the RBS Proposal, each of BB Ltd, BB International and BBUS LP had an interest or interests in the proposed investment by the Investment Partnership in the Coinmach Acquisition going ahead which conflicted or potentially conflicted with the interests of the Investment Partnership.

Particulars

(a) Without the proposed investment by the Investment Partnership the Coinmach Acquisition would not, or alternatively might not, have been able to go ahead.

(b) If the Coinmach Acquisition went ahead, BBUS LP would receive the Success Fee and this would indirectly benefit BB International and BB Ltd as (indirect) parent companies of BBUS LP.

(c) If the Coinmach Acquisition went ahead, that would create market confidence in the BB Group, including BB Ltd and BB International, and would support the market value of shares in BB Ltd.

(d) The Investment Partnership had no interest in the Success Fee, or in the creation of market confidence in the BB Group; its only interest was in the profitability or otherwise of the proposed investment.

(e) Further particulars will be provided, if required, after discovery.

C28. At no stage prior to the completion of the Coinmach Acquisition was the conflict which had arisen from the RBS Proposal referred to the Advisory Board, nor was the Investment Partnership's fully informed consent to the Coinmach Acquisition being completed despite the existence of that conflict sought or obtained.

C29. Further, each of following circumstances ("the Pre-Completion Circumstances") was material to the proposed investment by the Investment Partnership in the Coinmach Acquisition:

(a) the preparedness of RBS to pay the whole of the Cancellation Fee rather than proceed with the Coinmach Acquisition;

(b) the preparedness of Coinmach to agree to terms less favourable to it than those initially negotiated in order to permit the Coinmach Acquisition to proceed; and

(c) the preparedness of BBUS LP to agree to reduce or risk the reduction of its Success Fee in order to permit the Coinmach Acquisition to proceed.

C30. At no stage prior to the completion of the Coinmach Acquisition was any of the Pre-Completion Circumstances disclosed to:

(a) any organ of the Investment Partnership which was independent of the BB Coinmach Deal Team; or

(b) the Investor Partners.

C31. Further, the BB Coinmach Deal Team did not reject the RBS Proposal and proceed with the Investment Partnership's investment in the Coinmach Acquisition on the revised terms set out in paragraph C25 above because it had formed a genuine belief that that was in the best interests of the Investment Partnership.

C32. Further, in November 2007 the state of the relevant debt and equity markets and the financial position of Coinmach was such that the best interests of the Investment Partnership required the acceptance of the RBS Proposal rather than proceeding with an investment in the Coinmach Acquisition on the revised terms set out in paragraph C25 above.

C33. By reason of its investment in the Coinmach Acquisition, the Investment Partnership has suffered substantial loss.

C34. In or about late 2009:

(a) BBMGP was removed as Managing General Partner of the Investment Partnership; and

(b) the Investor Partners elected to continue the Investment Partnership and elected the plaintiff (which is a company incorporated in the Cayman Islands) as the new Managing General Partner.

C35. BBMGP claims that it is entitled to accrued management fees and to a Termination Payment in consequence of its removal as Managing General Partner of the Investment Partnership.

C36. In acting (through the BB Coinmach Deal Team) on behalf of the Investment Partnership to effect the Investment Partnership's investment in the Coinmach Acquisition, each of BB Ltd, BB International and BBUS LP owed fiduciary obligations to the Investment Partnership:

(a) not to permit itself to be placed in a position where its interests or the interests of other entities within the BB Group conflicted or potentially conflicted with the interests of the Investment Partnership unless there was fully informed consent to it so acting;

(b) to disclose to the proper organ of the Investment Partnership all information in its possession which was material to the proposed investment by the Investment Partnership in the Coinmach Acquisition; and

(c) to exercise its functions on behalf of the Investment Partnership in a manner which it genuinely considered was in the best interests of the Investment Partnership.

C37. Each of BB Ltd, BB International and BBUS LP breached those obligations, in that:

(a) each of BB Ltd, BB International and BBUS LP (through the BB Coinmach Deal Team and the BB Executive Committee) was responsible for effecting the Investment Partnership's investment in the Coinmach Acquisition and failed to obtain fully informed consent from the Investment Partnership to the conflict referred to in paragraph C27 above, thereby breaching the fiduciary obligation referred in paragraph C36(a) above;

(b) each of BB Ltd, BB International and BBUS LP knew or was on notice (through the BB Coinmach Deal Team and the BB Executive Committee) of the Pre-Completion Circumstances prior to the completion of the Coinmach Acquisition on 20 November 2007 and failed to disclose those Pre-Completion Circumstances to the proper organ of the Investment Partnership, thereby breaching the fiduciary obligation referred to in paragraph C36(b) above; and

(c) each of BB Ltd, BB International and BBUS LP was responsible (through the BB Coinmach Deal Team and the BB Executive Committee) for rejecting the RBS Proposal and effecting the Coinmach Acquisition on the revised terms referred to in paragraph C25 above where it had not formed a genuine belief that such actions were in the best interests of the Investment Partnership, thereby breaching the fiduciary obligation referred to in paragraph C36(c) above.

C38. Further, in acting (through the BB Coinmach Deal Team) on behalf of the Investment Partnership to effect the Investment Partnership's investment in the Coinmach Acquisition, each of BB Ltd, BB International and BBUS LP owed to the Investment Partnership and the Managing General Partner fiduciary obligations and obligations in tort to exercise reasonable care in so acting.

C39. Each of BB Ltd, BB International and BBUS LP breached those obligations, in that each of BB Ltd, BB International and BBUS LP knew or ought to have known (through the BB Coinmach Deal Team and the BB Executive Committee) that the best interests of the Investment Partnership required the acceptance of the RBS Proposal rather than effecting the Coinmach Acquisition on the revised terms referred to in paragraph C25 above.

C40. In acting as Managing General Partner of the Investment Partnership, BBMGP owed fiduciary obligations to the Investment Partnership:

(a) not to permit itself to be placed in a position where its interests or the interests of other entities within the BB Group conflicted with the interests of the Investment Partnership unless there was fully informed consent to it so acting;

(b) to refer any proposed investment involving any such conflict to the Advisory Board for approval;

(c) to disclose to the proper organ of the Investment Partnership all information in its possession which was material to any possible or proposed investment by the Investment Partnership; and

(d) to exercise its powers as Managing General Partner in a manner which it genuinely considered to be in the best interests of the Investment Partnership.

C41. BBMGP breached those obligations, in that:

(a) BBMGP failed to obtain fully informed consent from the Investment Partnership to the conflicts referred to in paragraph C27 above, thereby breaching the fiduciary obligations referred in paragraphs C40(a) and C40(b) above;

(b) BBMGP knew or was on notice (through the agency of the BB Coinmach Deal Team and also through the BB Executive Committee) of the Pre-Completion Circumstances prior to the completion of the Coinmach Acquisition on 20 November 2007 and failed to disclose those Pre-Completion Circumstances to the proper organ of the Investment Partnership, thereby breaching the fiduciary obligation referred to in paragraph C40(c) above; and

(c) BBMGP (through the agency of the BB Coinmach Deal Team) rejected the RBS Proposal and effected the Coinmach Acquisition on the revised terms referred to in paragraph C25 above where it had not (through the agency of BB Ltd, BB International or BBUS LP or the BB Coinmach Deal Team) formed a genuine belief that such actions were in the best interests of the Investment Partnership, thereby breaching the fiduciary obligation referred to in paragraph C40(d) above.

C42. Further, in acting as the Managing General Partner of the Investment Partnership, BBMGP owed to the Investment Partnership fiduciary obligations and obligations in tort to exercise reasonable care in so acting.

C43. BBMGP breached those obligations, in that it knew or ought to have known (through the agency of the BB Coinmach Deal Team and also through the BB Executive Committee) that the best interests of the Investment Partnership required the acceptance of the RBS Proposal rather than effecting the Coinmach Acquisition on the revised terms referred to in paragraph C25 above.

C44. In failing to refer the proposed investment by the Investment Partnership to the Advisory Board on account of the conflict of interest arising from the Success Fee, BBMGP breached the terms of the Limited Partnership Agreement referred to in paragraph C13 above.

C45. Further, the breaches of fiduciary and tortious obligations on the part of BBMGP referred to in paragraphs C41 and C43 above constituted "fraud, gross negligence, wilful misconduct, bad faith or reckless disregard of its obligations as general partner of the [Investment] Partnership" for the purposes of clause 14.4.2 of the Limited Partnership Agreement and, consequently, BBMGP is not entitled to the Termination Payment in consequence of its removal.

C46. Any entitlement of BBMGP to accrued management fees, or, alternatively to paragraph C45 above, to a Termination Payment, is to be set off against its liability for breach of the Limited Partnership Agreement or for breach of those obligations.

C47. Each of BB Ltd, BB International and BBUS LP received a benefit from, or participated (through the BB Coinmach Deal Team and the BB Executive Committee) in, the breaches of fiduciary duty by BBMGP referred to in paragraphs C41 and C43 above when it knew or was on notice (through the BB Coinmach Deal Team and the BB Executive Committee) of those breaches.

C48. The plaintiff brings these proceedings as Managing General Partner of the Investment Partnership pursuant to the Limited Partnership Agreement and, to the extent necessary, as representative of the Investor Partners pursuant to rule 7.4 of the Uniform Civil Procedure Rules 2005 (NSW).

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Citations

Global Partners Fund Ltd v Babcock & Brown Ltd (In Liq) [2010] NSWSC 270

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CITATION:	Global Partners Fund Limited v Babcock & Brown Limited (In Liquidation) [2010] NSWSC 270
HEARING DATE(S):	15,16,17,18 & 24 March 2010
JUDGMENT DATE :	12 April 2010
JUDGMENT OF:	Hammerschlag J
DECISION:	Plaintiff’s motion dated 12 February 2010 is dismissed. The proceedings against the second defendant are dismissed. The Summons against the third and fourth defendants is set aside.
CATCHWORDS:	CORPORATIONS – EQUITY – CONTRACT – PRIVATE INTERNATIONAL LAW – PRACTICE AND PROCEDURE – Corporations Act 2001 (Cth) s 500(2) – a newly appointed General Managing Partner incorporated in the Cayman Islands of a limited partnership registered in England commenced proceedings in this Division against the former General Managing Partner and three other entities in the Babcock & Brown Group claiming damages for breach of fiduciary duties owed to the partnership and for breach of duty of care – the first of those other entities (an Australian corporation) is in liquidation and the proceedings were commenced without the necessary statutory leave – leave was opposed by the liquidators – requirements for leave and whether it should be granted in this case – the former General Managing Partner (the fourth defendant in these proceedings) which is incorporated in the Cayman Islands commenced proceedings in England for monies allegedly owed to it under the Partnership Agreement – one of the two other entities sued in this Court (the second defendant) is an Australian corporation, the other is a limited partnership in Delaware – they are also plaintiffs in the English proceedings claiming declaratory relief – the plaintiffs in the English proceedings (the second, third and fourth defendants here) brought motions to set aside the summons against them, to set aside service, to dismiss the proceedings or to stay them – PRACTICE AND PROCEDURE – summary dismissal and striking out – whether plaintiff’s case should be struck out as not disclosing a cause of action or as embarrassing - EQUITY – standing of the plaintiff to sue for damages suffered by “the Partnership” – CONTRACT – Partnership Agreement contains covenant consenting to the exclusive jurisdiction of the English courts – construction and operation of the provision – PRIVATE INTERNATIONAL LAW – forum non conveniens – whether this jurisdiction is clearly inappropriate for the proceedings
LEGISLATION CITED:	Corporations Act 2001 (Cth) Limited Partnerships Act 1907 Uniform Civil Procedure Rules 2005 (NSW) Civil Procedure Act 2005 (NSW) Corporations Regulations 2001 (Cth) Companies Act 1961 (Qld)
CATEGORY:	Principal judgment
CASES CITED:	Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538 Spiliada Maritime Corporation v Cansulex Ltd [1987] AC 460 Vagrand Pty Ltd (in liq) v Fielding (1993) 10 ACSR 373 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Dey v Victorian Railways Commissioners (1949) 78 CLR 62 Webster v Lampard (1993) 177 CLR 598 Agar v Hyde (2000) 201 CLR 552 Wickstead v Browne (1992) 30 NSWLR 1 Strong v Simpson (Supreme Court of New South Wales, McLelland J, 31 July 1992, unreported) Ucak v Avante Developments Pty Ltd [2007] NSWSC 367 National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514 Trendtex Trading Corp v Credit Suisse [1982] AC 679 Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 Aggeliki Charis Compania Maritima SA v Pagnan SpA (The Angelic Grace) [1995] I Lloyd’s Rep 87 Huddart Parker Ltd v The Ship “Mill Hill” (1950) 81 CLR 502 Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197 FAI General Insurance Co Ltd v Ocean Marine Mutual Protection and Indemnity Association Ltd (1997) 41 NSWLR 117; (1997) 41 NSWLR 559 Akai Pty Ltd v People’s Insurance Company Ltd (1996) 188 CLR 413 Incitec Ltd v Alkimos Shipping Corporation [2005] FCA 191 Owners of cargo on vessel Eleftheria v Owners of Ship Eleftheria [1969] 2 All ER 641 Compagnie des Messageries Maritimes v Wilson (1954) 94 CLR 577 Recyclers of Australia Pty Limited v Hettinga Equipment Inc (2000) 100 FCR 420 Fiona Trust & Holding Corporation v Privalov [2008] 1 Lloyd’s Rep 254 Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 Donohue v Armco Inc [2002] 1 Lloyd’s Rep 425 Winnetka Trading Corporation v Julius Baer International [2008] EWHC 3146 (Ch) Morgan Stanley & Co International PLC v China Haisheng Juice Holdings Co Ltd [2009] EWHC 2409 (Comm) Credit Suisse First Boston (Europe) Ltd v MLC (Bermuda) Ltd [1999] 1 Lloyd’s Rep 767 CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345 Puttick v Tenon Limited (2008) 238 CLR 265 Bella Products Pty Ltd v Creative Designs International Ltd (2009) 258 ALR 538 Ogilvie-Grant v East Liquidator of Gordon Grant and Grant Pty Ltd (1983) 7 ACLR 669 Meehan v Stockmans Australia Cafe Holdings Pty Ltd (1996) 22 ACSR 123
PARTIES:	Global Partners Fund Limited - Plaintiff Babcock & Brown Limited (In Liquidation) - First Defendant Babcock & Brown International Pty Limited - Second Defendant Babcock & Brown LP - Third Defendant BBGP Managing General Partner Limited - Fourth Defendant
FILE NUMBER(S):	SC 2010/26129
COUNSEL:	T.G.R. Parker SC with N.J. Owens [Plaintiff] P.M. Wood - [First Defendant] A.S. Bell SC with C.A. Moore and A. Rao - [Second, Third & Fourth Defendants]
SOLICITORS:	Clayton Utz [ Plaintiff] Blake Dawson [First Defendant] Freehills [Second, Third & Fourth Defendants]