Litmus Australia Pty Ltd (in liq) v Canty

[2006] NSWSC 196

Reported Decision: 57 ACSR 71
198 FLR 184

New South Wales

Supreme Court

CITATION:	Litmus Australia Pty Ltd v Canty & Ors [2006] NSWSC 196
HEARING DATE(S):	02/12/05, 08/03/06
JUDGMENT DATE :	28 March 2006
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Orders that matter proceed on pleadings and that statement of claim be filed and served within 14 days, failing which originating process will be struck out. Order that plaintiff pay first and third defendants' costs of the proceedings to date and of the interlocutory process.
CATCHWORDS:	PROCEDURE - application for order striking out originating process where no supporting affidavit filed - only affidavit sworn some months later did not clearly articulate plaintiff's case - CORPORATIONS - procedure - where Corporations Act claims and general law claims advanced in single proceeding - whether two proceedings required - source of Supreme Court's jurisdiction in Corporations Act matters - whether proceeding in which Corporations Act relief claimed may include claim for other relief - PROCEDURE - costs - application for costs order against plaintiff's solicitors - whether costs incurred improperly or without reasonable cause in circumstances for which solicitors responsible
LEGISLATION CITED:	Civil Procedure Act 2005, ss.56, 99(1), 99(2) Constitution, ss.75(iii), 76(i), 77(iii) Corporations Act 2001 (Cth), ss.180, 181, 182, 459G, 58AA, 1337B Judiciary Act 1903 (Cth), s.39(2) Legal Profession Act 1987, s.198L(2) Legal Profession Act 2004, ss.347(2), 348 Supreme Court Act 1970, s.28(1) Supreme Court (Corporations) Rules 1999, rules 1.3, 2.2, 2.4 Trade Practices Act 1974 (Cth), s.86(2) Uniform Civil Procedure Rules 2005, rules 6.2, 6.6(3)(a), 36.1 Practice Notes SC Eq 1, paras 38-42, SC Eq 4, paras 5, 30,
CASES CITED:	Alfred Dunhill Ltd v Sunoptics SA [1979] FSR 337 Applicant A110/2002 v Minister for Immigration & Multicultural and Indigenous Affairs [2003] FCA 695 Bagley v Pinebelt Pty Ltd [2000] NSWSC 655 British American Tobacco Australia Ltd v Western Australia (2003) 217 CLR 30 Coventry v Charter Pacific Corporation Ltd (2005) 80 ALJR 132 Degiorgio v Dunn (No 2) (2005) 62 NSWLR 284 Forsyth v Deputy Commissioner of Taxation (2004) 62 NSWLR 132 Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 John Fairfax Publications Pty Ltd v Attorney-General (2000) 158 FLR 81 Kable v Director of Public Prosecutions (1996) 189 CLR 51 Lemoto v Able Technology Pty Ltd (2005) 63 NSWLR 300 Litmus Australia Pty Ltd v Canty [2006] NSWSC 138 Lord v Commissioner of Taxation (2001) 167 FLR 71 Redowood Pty Ltd v Goldstein Technology Pty Ltd [2004] NSWSC 515
PARTIES:	Litmus Australia Pty Ltd (in liquidation) - Plaintiff Paul Brian Canty - First Defendant Lindsay Robert Aitken - Second Defendant Quality Images Australasia Pty Limited - Third Defendant
FILE NUMBER(S):	SC 2189/05
COUNSEL:	Mr J.T. Johnson - Plaintiff Second Defendant in person Mr C.J. Bevan/Mr A. Iuliano - First and Third Defendants
SOLICITORS:	Marsdens Law Group - Plaintiff Second Defendant in person Evangelos Patakas & Associates - First and Third Defendants

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

BARRETT J

TUESDAY, 28 MARCH 2006

2189/05 LITMUS AUSTRALIA PTY LIMITED (IN LIQUIDATION) v PAUL BRIAN CANTY & 2 ORS

JUDGMENT

Background

1 On 31 March 2005, the plaintiff, a company in liquidation, filed an originating process in which it sought against the defendants (two individuals who are or were its directors and another company):

“1. A declaration that the First Defendant in effecting and or permitting and or failing to stop the transfer of the business operations and undertaking of the Plaintiff to the Third Defendant he [sic] acted in breach of his duty as a director of the Plaintiff:
(a) under section 180 of the Corporations Act 2001; and or
(b) under section 181 of the Corporations Act 2001; and or
(c) under section 182 of the Corporations Act 2001; and or

(d) at general law

arising from his position as a director of the Plaintiff.
2. A declaration that the First [sic] Defendant in effecting and or permitting and or failing to stop the transfer of the business operations and undertaking of the Plaintiff to the Third Defendant he [sic] acted in breach of his duty as a director of the Plaintiff:
(e) under section 180 of the Corporations Act 2001; and or
(f) under section 181 of the Corporations Act 2001; and or
(g) under section 182 of the Corporations Act 2001; and or

(h) at general law

arising from his position as a director of the Plaintiff.
3. A declaration that the Third Defendant was involved in or knowingly concerned in the breaches of duty referred to in paragraph 1 above by the First Defendant and or paragraph 2 above by the Second Defendant.
4. Compensation pursuant to section 1317H of the Corporations Act.
5. Alternatively, equitable compensation.
6. Alternatively, damages pursuant to section 1324(10) of the Corporations Act.
7. Interest.
8. Costs.
9. Such further or other Order(s) as to the Court deems fit.”

(It is recognised that the reference to “First Defendant” in paragraph 2 should be a reference to “Second Defendant”: see paragraph 3.)

2 These nine numbered items are preceded by the following:

“On the facts stated in the supporting affidavits the Plaintiff claims as against the Defendants and each of them:-“

The present claim

3 By the interlocutory process now before me, the first and third defendants seek an order that the originating process be struck out, as well as certain special orders with respect to costs. The claim for the first order rests essentially on two bases.

4 The first of those bases concerns the absence of any supporting affidavit. The claims in the originating process are, as I have said, introduced by words to the effect that the claims are made on the basis of facts stated in supporting affidavits. The first and third defendants complain that no affidavit was filed with the originating process on 31 March 2005 and that the only affidavit subsequently filed by the plaintiff is an affidavit of its liquidator sworn on 13 October 2005 which deposes to very few facts and otherwise merely annexes documents. The absence of any affidavit deposing to facts material to proof of the allegations central to the claims in the originating process is said by the first and third defendants to cause the originating process to be, in the particular circumstances, an abuse of process.

5 The second basis on which the first and third defendants say that the originating process should be struck out arises from the circumstance that the proceedings were commenced, in a procedural sense, under the Supreme Court (Corporations) Rules 1999 and in the Corporations List of the Equity Division. This, it is said, means that the proceedings must be confined to “matters” arising under the Corporations Act 2001 (Cth) and may not extend also to matters arising under the general law.

The first basis of attack

6 Rule 2.2 of the Supreme Court (Corporations) Rules says that, unless those rules otherwise provide, an application “required or permitted by the Corporations Act to be made to the Court” is to be made “by filing an originating process”, in a case where the application is not made in a proceeding already commenced in the Court. Rule 2.4 is in the following terms:

“ Supporting affidavits

(1) Unless the Court otherwise directs, an originating process, or interlocutory process, must be supported by an affidavit stating the facts in support of the process.

(2) Subject to rule 2.4A, an affidavit in support of an originating process must annex or exhibit a record of a search of the records maintained by the Commission, in relation to the company that is the subject of the application to which the originating process relates, carried out no earlier than 7 days before the originating process is filed.”

7 It is thus clear that a supporting affidavit is required in every case commenced by originating process, subject to the possibility that the court may direct “otherwise”. There has been no such contrary direction here. It is the contention of the first and third defendants that the supporting affidavit is the vehicle by which “contentions of fact [which] are analogous to pleadings” are advanced by the plaintiff. They also say that where, as here, there is provision for an affidavit in support of the process initiating the proceeding, that affidavit “serves the purpose of a pleading”. They point to the fact that, under rule 6.6(3)(a) of the Uniform Civil Procedure Rules 2005, the court may, in proceedings commenced by summons, order that affidavits stand as pleadings.

8 It is true that, in certain particular contexts, an affidavit may serve the purpose of advancing contentions. Applications under s.459G of the Corporations Act are an example: see Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452. But, generally speaking, an affidavit does not outline a case. As rule 2.4 itself states, the kind of supporting affidavit with which it is concerned is “an affidavit stating the facts in support of the process”. Such an affidavit is not the medium for advancing contentions of law. This is made clear in the following passage in the judgment of Roskill LJ in Alfred Dunhill Ltd v Sunoptics SA [1979] FSR 337 at p.352:

“I hope it is not out of place to say at this stage that the affidavits filed on both sides are in at least two cases very much too long. Affidavits are designed to place facts, whether disputed or otherwise, before the tribunal for whose help they are prepared. They are not designed as a receptacle for or as a vehicle for legal arguments. Draftsmen of affidavits should not, as a general rule, put into the mouths of the intended deponents legal arguments of which those deponents are unlikely ever to have heard. Legal arguments, especially in interlocutory proceedings, should come from the mouths of those best qualified to advance them and not be put into the mouths of the deponents. There has been much unnecessary paper in this case brought about by the inclusion of legal arguments in affidavits.”

9 The purpose of a pleading is to give notice of the case to be made at trial by advancing contentions in such a way as to elicit denial, admission or “not admitted”. The contentions are principally contentions of fact. The evidence (including evidence given by affidavit) is directed towards making good those contentions.

10 In a matter governed by the Supreme Court (Corporations) Rules, the plaintiff does not have the ability to choose a statement of claim as the initiating process (compare rule 6.2 of the Uniform Civil Procedure Rules). But this does not mean that the plaintiff is to be held forever within the straightjacket of the originating process. The plaintiff may resort to a statement of claim after filing the originating process. Rule 1.3(2) of the Supreme Court (Corporations) Rules is in these terms:

“The other rules of the Court apply, so far as they are relevant and not inconsistent with these Rules, to a proceeding in the Court under the Corporations Act, or the ASIC Act, that is commenced on or after the commencement of these Rules.”

11 That provision was the source of the following observations of Acting Master Berecry in Lord v Commissioner of Taxation (2001) 167 FLR 71 at [37]:

“These proceedings are proceedings based on rights and liabilities under the Corporations Law and they are commenced under the provisions of the Corporations Law Rules. However, where those Rules are silent, the Supreme Court Rules apply and, therefore, parties have the protection of the Supreme Court Rules if there are matters of concern which require the Court to make determinations for the proper and fair prosecution or defence of proceedings.”

12 The matter is now the subject of paragraph 30 of Practice Note SC Eq 4:

“Where a claim for final relief has been made in a proceeding to which the Rules [ie, the Supreme Court (Corporations) Rules 1999] apply, whether the claim is made by originating process or by interlocutory process, any subsequent application for an order for pleadings should be made by interlocutory process. Where a claim for final relief is to be made in a contemplated proceeding to which those Rules will apply, an application for an order for pleadings may be made either in the originating process, or by an accompanying interlocutory process. An originating or interlocutory process should not be amended so as to be converted into a pleading.”

13 In the present case, the originating process now under attack included the following under a heading “B. INTERLOCUTORY ORDERS”:

“Interlocutory application will be made upon the first return date of the proceedings for orders that:
1. The proceedings continue on pleadings.
2. The evidence of the parties be by Affidavit.
…”

14 Soon after service of the originating process in August 2005, the solicitors for the first and third defendants complained, by letter to the solicitors for the plaintiff, about the absence of any affidavit in support. That complaint was first made in a letter of 24 August 2005. The complaint was repeated in a letter of 30 August 2005 which also said:

“[W]e consider that having regard to absence of any particulars of the basis of the plaintiff’s claim and the allegations relied upon to seek the relief sought in the Originating process, that it is appropriate and necessary for your client’s claim to be pleaded by Statement of Claim and accordingly seek your consent to such pleading. In the event that your client does not consent then we propose to apply to the court for orders requiring the filing of a Statement of Claim.”

15 Having regard to the content of the originating process concerning proposed interlocutory relief, it was somewhat odd for the solicitors for the first and third defendants to say what they said in the extract just quoted. One can only assume that they had overlooked the relevant part of the originating process. If they had read it, the logical thing for them to say would have been that they had instructions to consent to the making of an order that “the proceedings continue on pleadings” as explicitly claimed in the originating process.

16 The letter of 30 August 2005 from the solicitors for the first and third defendants was accompanied by short minutes of orders to the making of which the plaintiff’s solicitors were invited to consent at a directions hearing on 1 September 2005. Among these were an order that a verified statement of claim be filed and served by 15 September 2005 and an order that the plaintiff serve affidavits in support of the originating process by 5 September 2005.

17 By reply dated 31 August 2005, the plaintiff’s solicitors said:

“We do not, at this stage, have affidavits in support of our clients [sic] originating process to serve. We do not propose to do so until pleadings have closed. We refer you to our proposed short minutes of order.”

18 The plaintiff’s solicitors then proposed orders which included the following:

“The plaintiff to provide further particulars of the facts and circumstances relied on for the claims for relief made in the originating process filed on 31 March 2005 by filing and serving a verified statement of claim by 29 September 2005.”

The letter went on to deal with matters of timetable.

19 By letter of the same day, 31 August 2005, the solicitors for the first and third defendants rejected the timetable proposed by the solicitors for the plaintiff. That letter continued:

“We advise that we will be seeking tomorrow that the Originating Process be struck out because of incompetence of that process and the failure to comply with the rules in the absence of an affidavit in support thereof together with an order against your firm as to the costs wasted by our clients to date (noting that your client is hopelessly insolvent). In support of that application we propose to tender and rely upon the correspondence exchanged between our firms to date, including this letter.”

20 The matter came before a registrar on 1 September 2005. The only account I have of what happened on that occasion comes from a letter of 26 September 2005 from the solicitors for the first and third defendants to the plaintiff’s solicitors:

“We confirm the following occurred at the return date on 1 September 2005:
1. counsel appearing for your client proposed that the registrar make directions as per the Short Minutes of Order enclosed with your letter to this firm dated 31 August 2005;
2. counsel appearing for our client objected to your proposed Short Minutes of Order for the reasons set out in our prior correspondence to you;
3. counsel for your client informed the court that your client had failed to file an affidavit in support of its Originating Process and that your client was awaiting a decision by the High Court in another matter pertinent to the institution of proceedings against a bankrupt before determining whether your client could proceed against the second defendant;
4. counsel appearing for your client insisted that our clients file a Notice of Appearance; and
5. the registrar adjourned this matter to allow the parties to deal with the issues in dispute concerning the incompetence of the Originating Process filed by your client.”

21 The letter went on to complain again about “the incompetence of the Originating Process” and said:

“[I]f it is your client’s intention to proceed by way of pleadings in a statement of claim then it should have by now provided us with the proposed statement of claim for our client’s consideration.”

22 The present application that the originating process be struck out as an abuse of process was then filed.

23 It is, I think, clear that a summons or other initiating process which does not advance a pleaded case may be struck out as an abuse of process if the applicant under it fails altogether to show any factual substratum and does not advance any evidence at all in support: see, for example, Applicant A110/2002 v Minister for Immigration & Multicultural and Indigenous Affairs [2003] FCA 695. But the status and quality of the summons or initiating process must, in my view, be judged at the time the strike out application is made.

24 In the present case, as I see it, two factors are of importance to the position as it now stands. The first is that the plaintiff has now filed and served the affidavit of 13 October 2005. The second is that the plaintiff and the first and third defendants have, through their correspondence, shown mutual acceptance of the proposition that the matter should proceed on pleadings, although their disagreement on other issues apparently prevented an order to that effect being made by consent on 1 September 2005.

25 The affidavit of 13 October 2005 may be capable of being regarded as an affidavit in support of the claims in the originating process, although the first and third defendants question (quite rightly, in my view) whether its content is really such as to give it that quality – added to which it was apparently prepared and sworn only after the strike out application had been filed.

26 The liquidator’s affidavit merely says that each of the first and second defendants was examined pursuant to s.596A in August 2003 and annexes a transcript of each examination, together with the several documents that were produced at the examinations and marked for identification. Among the documents are a draft agreement for the sale of business and purported minutes of meetings of directors of Quality Images Australia Pty Ltd (as the plaintiff was formerly called) on 7 and 31 August 1999 recording certain resolutions about that company’s ceasing manufacturing and that the third defendant “would takeover the former company’s business on the following terms” (9 August) and “would commence trading and take over the said business” (31 August). Each examinee was examined about these matters and the transcripts record the questions and answers on the subject. This diffuse collection of material buried in long records of examinations is apparently said by the plaintiff to represent or convey the facts upon which the claims in the originating process are made.

27 The plaintiff’s approach to this matter has been quite unsatisfactory. While it cannot be said that, as things now stand, the plaintiff has failed utterly to show any factual substratum and to advance any evidence at all in support, it can certainly be said that it has failed to outline its case with any acceptable degree of precision. This is because such material as the plaintiff has produced lacks particularity. The matter is one which, as both sides have recognised, clearly calls for a statement of claim. Yet the plaintiff has not, to this point, produced one.

28 It was submitted on behalf of the plaintiff that there was an impediment to its laying out a fully articulated claim because of uncertainty in the law. The second defendant is a bankrupt. It was said that, until the High Court delivered judgment in Coventry v Charter Pacific Corporation Ltd (2005) 80 ALJR 132 on 15 November 2005, there was uncertainty whether any monetary liability of the second defendant of the kind sought to be established in the proceedings would be provable in his bankruptcy. The plaintiff apparently takes the view that, as a result of the Coventry case, that question must be answered in the negative. That led Mr Johnson of counsel, who appeared for the plaintiff, to foreshadow discontinuance of the proceedings as against the second defendant.

29 I do not accept that any such uncertainty justified failure by the plaintiff to articulate the claims advanced by the originating process. The plaintiff had marshalled its thoughts and arguments sufficiently to draft the originating process. It must be assumed that fully formulated propositions of fact and law had enabled it to do so, one of the propositions of law presumably being the contrary of what was ultimately decided in Coventry. There is no reason why the plaintiff could not (and should not) have set out those propositions or contentions in the appropriate way, even though one of them was recognised as, in a sense, provisional.

30 I would be minded to strike out the originating process because of the deficiencies to which I have referred were it not for the significant point that the claims (or some of them) arguably became statute barred in June 2005. The preferable course, in relation to what I have called the first avenue of attack, is that the court make orders that the matter proceed on pleadings and that the plaintiff file and serve a verified statement of claim within fourteen days, failing which the originating process shall be deemed struck out. Although the interlocutory process before me does not contain a claim for such orders, rule 36.1 of the Uniform Civil Procedure Rules 2005 and the circumstances of this case warrant them. Such a course may, however, be affected by the second part of the interlocutory application, to which I now turn.

The second basis of attack

31 Set out at paragraph [1] above are the orders sought in the originating process. The introductory words referring to the (then non-existent) “supporting affidavits” are set out at paragraph [2]. Preceding both is the following:

“This application is made under sections 180, 181, 182, 183, 185, 197, 241, 598(2), 1317E, 1317H, 1324 of the Corporations Act 2001 (Cth) and under the general law.”

32 The first two paragraphs of the originating process then refer to alleged breaches of director’s duties “under” enumerated provisions of the Corporations Act “and or at general law”.

33 The proceedings are thus initiated and pursued, as regards the first and second defendants, by reference to alleged breach of statutory duties imposed by the Corporations Act and alleged breach of general law duties. It is that circumstance that gives rise to the following submissions (extracted from the written outline of submissions provided by Mr Bevan and Mr Iuliano of counsel on behalf of the first and third defendants):

“12. The plaintiff cannot in these proceedings seek relief under the ‘general law’. The Corporations List is limited to “matters” arising under the Corporations Act by the procedures prescribed in the Corporations Rules .
13. The Corporations Rules are an investiture of federal jurisdiction under s75(iii) of the Constitution (Cth) and Judiciary Act , 1903, s.39(2). The ultimate source of jurisdiction the Court is exercising is the Constitution , s.51(xx), not the inherent equitable jurisdiction of the Court (as is the case in the General List).
14. There is no ‘fusion’ of the two jurisdictions under Corporations Act . See sections 58AA(1)(b) and (2) (‘ proceedings in relation to a matter under this Act ’): and 1337(B)(2)(a) (‘ with respect to civil matters arising under …’ ).
15. In any event, there is no articulation of what relief is sought pursuant to the ‘general law’ in the Originating Process. The plaintiff should pursue its rights, if any, to seek relief under the ‘general law’ in proceedings commenced by a fully pleaded statement of claim in the General List (i.e. inherent jurisdiction), but not by invoking the Court’s statutory jurisdiction in the Corporations List.
16. In prayer 4, the plaintiff does [sic: scil. not ] make any factual contentions to support its entitlement to compensation claimed pursuant to Corporations Act , s.1317H.
17. In relation to prayer 5, the plaintiff does not make any factual contentions to support its entitlement to equitable compensation. The plaintiff should pursue its entitlement, if any, to equitable damages in proceedings commenced by a fully pleaded statement of claim in the General List (i.e. inherent jurisdiction), but not by invoking the Court’s statutory jurisdiction in the Corporations List.”

(As the submissions make clear in an earlier paragraph, references to the “Corporations Rules” are references to the Supreme Court (Corporations) Rules 1999.)

34 The propositions in paragraph 13 of the submissions are misconceived. The Supreme Court (Corporations) Rules are not “an investiture of Federal jurisdiction”. They are rules of this court made pursuant to Part 9 of the Supreme Court Act 1970, an enactment of the Parliament of New South Wales. Furthermore, this court, in dealing with civil matters under the Corporations Act of the Commonwealth, does not exercise jurisdiction derived in any way from s.75(iii) of the Constitution or s.39(2) of the Judiciary Act 1903 (Cth). Section 75(iii) of the Constitution confers on the High Court original jurisdiction in all matters in which the Commonwealth, or a person suing or being sued on behalf of the Commonwealth, is a party. Section 39(2) of the Judiciary Act enacts that, subject to the conditions and restrictions there set out, “the several Courts of the States” are invested with federal jurisdiction “in all matters in which the High Court has original jurisdiction or in which original jurisdiction can be conferred upon it”. It follows, as a general proposition, that, subject to those conditions and restrictions, the Supreme Court of New South Wales is invested with federal jurisdiction in all matters in which the Commonwealth or a person suing or being sued on behalf of the Commonwealth is a party: see Forsyth v Deputy Commissioner of Taxation (2004) 62 NSWLR 132. But in determining the present plaintiff’s claims, the court would not be exercising that jurisdiction. The claims (pursued for the plaintiff by its liquidator) for declarations that directors breached duties imposed by the Corporations Act of the Commonwealth and for consequential orders under that Act are in no conceivable sense a claim to which the Commonwealth or a person suing or being sued on its behalf is a party.

35 This court’s ability to adjudicate the plaintiff’s claims based on the several Corporations Act provisions and to exercise federal jurisdiction accordingly has a quite different source. Mr Bevan referred to this in his oral submissions. Section 77(iii) of the Constitution empowers the Commonwealth Parliament to invest any court of a State with federal jurisdiction with respect to any matter mentioned in s.75 or s.76. Those matters include any matter “arising under any laws made by the Parliament”: see s.76(ii). Matters arising under the Corporations Act are accordingly matters mentioned in s.76 and therefore matters to which the investing power of the Commonwealth Parliament extends under s.77(iii). Parliament has exercised that investing power with respect to certain matters arising under the Corporations Act by enacting s.1337B of that Act (which, like s.39(2) of the Judiciary Act, is the immediate vehicle for conferral of jurisdiction derived ultimately from the Constitution: see British American Tobacco Australia Ltd v Western Australia (2003) 217 CLR 30 at [5] – [6]). Section 1337B of the Corporations Act is as follows:

“ Jurisdiction of Federal Court and State and Territory Supreme Courts

(1) Jurisdiction is conferred on the Federal Court of Australia with respect to civil matters arising under the Corporations legislation.

(2) Subject to section 9 of the Administrative Decisions (Judicial Review) Act 1977 , jurisdiction is conferred on the Supreme Court of:
(a) each State; and
(b) the Capital Territory; and
(c) the Northern Territory;
with respect to civil matters arising under the Corporations legislation.

(3) Despite section 9 of the Administrative Decisions (Judicial Review) Act 1977 , jurisdiction is conferred on the Supreme Court of:
(a) each State; and
(b) the Capital Territory; and
(c) the Northern Territory;
with respect to matters arising under that Act involving or related to decisions made, or proposed or required to be made, under the Corporations legislation by a Commonwealth authority or an officer of the Commonwealth.
Note 1: The Federal Court also has jurisdiction with respect to these matters under that Act.
Note 2: A Supreme Court may be required to transfer a proceeding with respect to such a matter to the Federal Court: see subsection 1337H(3).


(4) Subsection (3) applies to a decision made, or proposed or required to be made:
(a) whether or not in the exercise of a discretion; and
(b) whether before or after that subsection commences.

(5) The jurisdiction conferred on a Supreme Court by subsection (2) or (3) is not limited by any limits to which any other jurisdiction of that Supreme Court may be subject.

(6) This section has effect subject to section 1337D.”

36 A claim by a company that a director of the company has breached a duty created by s.180, s.181 or s.182 of the Corporations Act is obviously a matter “arising under” that Act, as are claims for statutory relief under other provisions of the Corporations Act consequent upon any finding of such breach. All such claims are therefore claims with respect to which this court has jurisdiction because of the conferral effected by s.1337B(2) of the Corporations Act.

37 The submissions made by Mr Bevan and Mr Iuliano then seem to advance two propositions (or perhaps it is only one): that a proceeding in which a civil matter arising under the Corporations Act is to be determined cannot also be the vehicle for determination of some matter not arising under the Corporations Act; and that this court cannot, in its Corporations List, entertain any such hybrid proceeding. The correct approach, it is said, is for claims arising under the Corporations Act to be pursued in the Corporations List by means of an originating process in accordance with the Supreme Court (Corporations) Rules and for claims asserting general law rights to be pursued by summons or statement of claim in proceedings in the General List without regard for those rules.

38 The “Corporations List” and the “General List” are not created by or recognised in any legislation or rule of court. Each is mentioned in Practice Note SC Eq 1 where the Corporations List is referred to as one of several “specialist lists” while the General List and allocation of matters to and within it are dealt with at paragraphs 38 to 42. Practice Note SC Eq 4 is devoted to “corporations matters” which it defines as meaning “proceedings and interlocutory applications that arise out of” the Corporations Act 2001 or the Supreme Court (Corporations) Rules 1999 “or seek relief thereunder”. Paragraph 5 of Practice Note SC Eq 4 reads:

“Corporations matters are usually dealt with in the Corporations List. Matters relating to other incorporated bodies such as co-operatives and incorporated associations may also be dealt with in this List.”

39 Although no provision of legislation or the rules of court refers to the Corporations List, the Supreme Court Act 1970, in s.28(1), empowers the Chief Justice to designate a judge to be a list judge within a division. By such a designation currently in force, a judge is designated as Corporations List Judge within the Equity Division. But nothing is said about the functions of that judge as Corporations List Judge, the obvious implication being that there should be a Corporations List and that that judge should administer it.

40 The creation of lists administered by list judges is designed to promote the smooth working of the court and the efficient despatch of its business. It does not create exclusive channels. Paragraph 5 of Practice Note Eq 4 (set out at paragraph [38] above) makes that clear. Much less does it mean that, on the one hand, “corporations matters” as defined by that practice note (or “civil matters arising under the Corporations legislation”, to use the terminology in s.1337B of the Corporations Act) and, on the other, matters not within those descriptions are to be litigated in some compartmentalised way that might have found favour in times when common law and equity were separately administered in different courts.

41 Sections 58AA and 1337B of the Corporations Act, referred to in paragraph 14 of the submissions, are said to indicate that “[t]here is no ‘fusion’ of the two jurisdictions under the Corporations Act”. What those provisions make clear is that this court, among others, has jurisdiction to hear and determine claims of the kind the plaintiff seeks to advance in the present proceeding by reference to the Corporations Act. Those sections say nothing about the ability of such a court to hear and determine other claims in a proceeding in which claims based on the Corporations Act are advanced. Nor could it be suggested that, because a particular proceeding involves not only claims based on alleged breach of duties imposed by the Corporations Act but also claims asserting entitlement to general equitable remedies for breach of analogous general law duties, the court was somehow exercising jurisdiction incompatible with the exercise of the judicial power of the Commonwealth: cf Kable v Director of Public Prosecutions (1996) 189 CLR 51; John Fairfax Publications Pty Ltd v Attorney-General (2000) 158 FLR 81. The award of equitable remedies is of the essence of the judicial function under the system of justice on which Chapter III of the Constitution is predicated. The inclusion of claims for such remedies in an originating process which also advances claims in respect of civil matters arising under the Corporations Act does not somehow pollute the proceeding so as to make it irregular or incompetent. It has never been suggested – nor could it be – that this court cannot, in one proceeding, entertain a common law cause of action for damages for breach of contract and a statutory cause of action for damages for contravention of s.52 of the Trade Practices Act 1974 (Cth). Such proceedings are heard and determined virtually every day, even though the jurisdiction to deal with the particular form of statutory misconduct is federal jurisdiction derived ultimately from the Constitution and conferred, in a direct sense, by s.86(2) of the Trade Practices Act.

42 Nor, in my opinion, is it possible to discover in the rules of court the strict division for which the first and third defendants contend with respect to matters arising under the Corporations Act. The full text of rule 1.3 of the Supreme Court (Corporations) Rules (quoted in part at paragraph [10] above) is as follows:

“ Application of these Rules and other rules of the Court

(1) Unless the Court otherwise orders, these Rules apply to a proceeding in the Court under the Corporations Act, or the ASIC Act, that is commenced on or after the commencement of these Rules.

(2) The other rules of the Court apply, so far as they are relevant and not inconsistent with these Rules, to a proceeding in the Court under the Corporations Act, or the ASIC Act, that is commenced on or after the commencement of these Rules.

(3) Unless the Court otherwise orders, the rules applying to a proceeding in the Court under the Corporations Act, or the ASIC Act, as in force immediately before the commencement of these Rules, continue to apply to a proceeding under the Corporations Act, or the ASIC Act, that was commenced before the commencement of these Rules.

Note. By virtue of the definition of this Act in section 9 of the Corporations Act, a reference to the Corporations Act includes a reference to the Corporations Regulations.”

43 A proceeding will be a “proceeding … under the Corporations Act or the ASIC Act” if the claims made and relief sought have their source wholly within the relevant Act. But a proceeding will not fail to be a “proceeding … under the Corporations Act or the ASIC Act” just because it also advances claims and seeks relief that have some other source. The first five words of rule 1.3(1) are important. If a hybrid proceeding were to arise which, for some reason or other, could not conveniently be conducted in accordance with the Supreme Court (Corporations) Rules, the court itself would exclude those rules as contemplated by those opening words, at the same time making such other arrangements as were conducive to the just, cheap and quick resolution of the particular controversy: see s.56 of the Civil Procedure Act 2005.

44 The remainder of the submissions extracted at paragraph [33] above does no more than reiterate the complaints based on the lack of an affidavit in support and requires no further comment.

45 I am of the opinion that what I have described as the second basis of attack pursued by the first and third defendants is without merit. It therefore does not stand in the way of the making of the orders outlined at paragraph [30] above.

Costs

46 The interlocutory process seeks orders as follows:

“2. An order that the liquidator of the plaintiff pay the first and third defendants’ costs of this proceeding and this interlocutory application.
3. In the alternative to order 2, an order that the plaintiff’s solicitors pay the first and third defendants’ costs of this proceeding and this interlocutory application.”

47 In submissions filed in circumstances that became controversial (see Litmus Australia Pty Ltd v Canty [2006] NSWSC 138), the first and third defendants made it clear that the claim for order 2 was not pressed. The claim for order 3 is, however, pressed and it is to that claim that I now turn. Mr Bevan made it clear that order 3 is sought as against the individual solicitor on the record.

48 The claim for a costs order against the solicitor is advanced pursuant to s.99(1)(b) of the Civil Procedure Act 2005. That basis was expressly confirmed in the course of submissions and it was made clear that the first and third defendants do not rely on s.348 of the Legal Profession Act 2004 or any aspect of the court’s inherent jurisdiction. Section 99(1) of the Civil Procedure Act is in these terms:

“ Liability of legal practitioner for unnecessary costs

(cf Act No 52 1970, section 76C; SCR Part 52A, rules 43 and 43A)

(1) This section applies if it appears to the court that costs have been incurred:
(a) by the serious neglect, serious incompetence or serious misconduct of a legal practitioner, or

(b) improperly, or without reasonable cause, in circumstances for which a legal practitioner is responsible.”

49 Section 99(2) provides that the court may, in any such case, do any of several things after giving the relevant legal practitioner a reasonable opportunity to be heard. In that connection, it was made clear by Mr Johnson of counsel that he appeared for the solicitor and made submissions on his behalf. Although there was reference in the course of the hearing to the fact that Mr Johnson also appeared for the plaintiff (see Lemoto v Able Technology Pty Ltd (2005) 63 NSWLR 300 at [192]), the dual role was not questioned.

50 Under s.99(2), the court may order a solicitor to pay the whole or any part of any costs that the solicitor’s client has been ordered to pay to any other person (s.99(2)(b)(ii)) or direct the solicitor to indemnify any party (other than the solicitor’s client) against costs payable by that party (s.99(2)(c)). The order actually sought is an order that the plaintiff’s solicitors “pay the first and third defendants’ costs of this proceeding and this interlocutory application”. In view of the way the matter was argued (there being no reference to indemnification), I interpret this as a twofold application: first, that the plaintiff pay the costs of the first and third defendants as described; and second, that the plaintiff’s solicitor pay the costs that the plaintiff is so ordered to pay.

51 Whether the discretion to make such an order against the solicitor is enlivened depends on whether the relevant costs – that is, the costs that the first and third defendants ask the court to order be paid by the plaintiff – have been incurred “improperly, or without reasonable cause, in circumstances for which a legal practitioner is responsible”. In a context such as the present, the relevant incurring is, it seems to me, the incurring by the plaintiff (client) by reason of the costs order the first and third defendants wish to see made against the plaintiff so that it may be the foundation for the s.99(2)(b)(ii) order against the solicitor.

52 As to the position in relation to costs as between the plaintiff and the first and third defendants, the orders outlined at paragraph [30] above represent, in substance, success for the first and third defendants upon their interlocutory process. In the ordinary course, therefore, there will be an order that the first and third defendants’ costs of the interlocutory process be paid by the plaintiff. There is also, however, a question about what paragraph 3 of the interlocutory process describes as “the costs of this proceeding”, being, as was made clear in argument, the plaintiff’s costs of the proceedings as a whole to date.

53 The proposition that the first and third defendants should have an order for those costs is advanced on the basis that the proceedings as a whole were commenced prematurely and in an inappropriate list and that the plaintiff failed to articulate in any sensible way its Corporations Act case and “general law” case against the first and third defendants. There is substance in the last part of this contention only. I have found that the plaintiff failed to produce any affidavit supporting the originating process and that its belated attempt to remedy the situation by the affidavit of 13 October 2005 really represented no remedy at all because the defendants were still in a position where they had no proper articulation of the case sought to be made against them. Had a supporting affidavit been provided in accordance with the rules, the first and third defendants would have been spared the efforts they were forced to make in and after August 2005 to obtain a proper statement of the case the plaintiff sought to make, culminating in the present application. These circumstances warrant an order that the plaintiff pay the first and third defendants’ costs of the proceedings as a whole to date, as well as their costs of the interlocutory process.

54 Should the plaintiff’s solicitor then be ordered to pay the costs that the plaintiff will be ordered to pay? In the present case, there is no suggestion that the solicitor has been guilty of professional misconduct or unsatisfactory professional conduct. The allegation is, rather, that he was instrumental in causing to be initiated by the originating process proceedings which were not properly articulated and that he did so without reference to and disclosure of any basis for the claims advanced. Two matters deserve particular comment in that connection. First, the originating process was accompanied by a certificate under s.198L(2) of the Legal Profession Act 1987 (cf s.347(2) of the Legal Profession Act 2004) stating that there were reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law that the claim in the proceedings had reasonable prospects of success. Second, however, the plaintiff’s solicitors said in the letter of 31 August 2005 (see paragraph [17] above) that they did not, at that stage, have affidavits in support of the originating process to serve. They thus made it clear that the claims made in the originating process “[o]n the facts stated in the supporting affidavits” were, in reality made without reference to any sworn testimony and likewise that the opinion as to reasonable prospects of success stated in s.198L(2) certificate was made without reference to any sworn testimony.

55 It may be said at once that it is quite possible for a lawyer to give a certificate under s.198L(2) (now s.347(2)) without having seen any affidavit deposing to facts which go to make up the relevant factual substratum. The relevant opinion may be formed by reference to documents, unsworn statements and other materials judged by the lawyer, acting responsibly, to be reasonably reliable. In the present case, the solicitors had before them, at the relevant time, the transcripts of the August 2003 examinations and the documents marked for identification at the examinations. Those materials were, as I read them, capable of being seen as the source of some factual foundation for the proposition that the business of the plaintiff had been disposed of to the third defendant, at the behest of the first and second defendants (the directors of the plaintiff), in circumstances objectively capable of being seen as involving breach of directors’ duties, and with the third defendant knowingly concerned in the breach. The absence of affidavits in support when the originating process and s.198L(2) certificate were filed in March 2005 therefore did not involve failure by the solicitor to see that there was an arguable case according to the relatively low threshold that applies for that purpose: see Lemoto v Able Technology Pty Ltd (above) at [131] – [132]; Degiorgio v Dunn (No 2) (2005) 62 NSWLR 284. The absence of such affidavits was, however, a breach of rule 2.4(1) of the Supreme Court (Corporations) Rules (see paragraph [6] above) but not one so serious as to warrant a costs order against the lawyer. It did not involve “serious dereliction of duty” or “other serious or gross misconduct”, to use expressions found in two of the cases to which Mr Johnson referred (Bagley v Pinebelt Pty Ltd [2000] NSWSC 655 (Hamilton J) and Redowood Pty Ltd v Goldstein Technology Pty Ltd [2004] NSWSC 515 (Austin J)).

56 The first and third defendants say that the plaintiffs’ solicitor was also derelict in allowing a hybrid proceeding to be commenced by originating process under the Supreme Court (Corporations) Rules. For reasons already stated, there is no substance in that complaint.

57 The first and third defendants further criticise the plaintiff’s solicitor because the concession that a statement of claim is necessary was not made until the hearing of the interlocutory process. It was said in submissions that it was the defendants who insisted on a statement of claim in August 2005 and that one has not yet been forthcoming. The last part of this is correct but the first part loses sight of the fact that the originating process itself contained an application by the plaintiff for an interlocutory order that the matter continue on pleadings; also that the plaintiff’s solicitors had, by letter dated 31 August 2005 (see paragraph [18] above), proposed that the plaintiff be subjected to an order that it file and serve a verified statement of claim by 29 September 2005. The reality is that the parties and their solicitors were, by 31 August 2005, ad idem on the need for a statement of claim and that it would have been a simple matter for that aspect to be dealt with by a consent order at the hearing before the registrar on 1 September 2005, even if the parties and their solicitors were at that time not in agreement on some other procedural matters, such as the timetable beyond the filing of the statement of claim. It is relevant to note that, according to the account quoted at paragraph [20] above, the plaintiff actually sought on 1 September 2005 orders that included an order for the filing of a statement of claim.

58 I am not satisfied that the first and third defendants have shown that the costs to be ordered against the plaintiff (and thereby incurred by the plaintiff) will have been incurred “improperly, or without reasonable cause, in circumstances for which a legal practitioner is responsible” so as to warrant any order under s.99(2)(b)(ii) against the plaintiff’s solicitor.

Disposition

59 I make the following orders:

1. Order that the proceedings continue on pleadings.

2. Order that the plaintiff file and serve a verified statement of claim within fourteen days.
3. Order that, in default of compliance by the plaintiff with Order 2, the originating process be struck out.
4. Order that the plaintiff pay the first and third defendants’ costs of both the proceedings to date and the interlocutory process filed on 27 September 2005.
5. Order that the said interlocutory process be otherwise dismissed.

60 I need add only that the plaintiff seeks an order for costs in respect of the first and third defendants’ abandoned application for a costs order against the plaintiff’s liquidator personally but that I do not regard that aspect as distinct or severable in such a way as to merit differential treatment.

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