McDonald v Shone

[2010] NSWSC 467

CITATION:	McDonald v Shone and Ors [2010] NSWSC 467
HEARING DATE(S):	28 April 2010
JUDGMENT DATE :	21 May 2010
JUDGMENT OF:	Schmidt J
DECISION:	1. The proceedings against Horwarth be dismissed. 2. Mr Shone's motions be dismissed. 3. Mr McDonald bear Horwarth’s costs as agreed until 21 April 2010 and from that date on an indemnity basis.
CATCHWORDS:	PROCEDURE - miscellaneous procedural matters - other matters - motions - plaintiff consents to orders dismissing proceedings against third defendant - question of costs - indemnity costs ordered in part - orders sought to set aside ex-parte order to extend time to serve pleadings on first defendant - orders not set aside - forum - not established that New South Wales is an inappropriate forum - whether pleaded claim is hopeless - not established - motions dismissed
LEGISLATION CITED:	Australian Securities and Investments Commission Act 2001 (Cth) Corporations Act 2001 (Cth) Uniform Civil Procedure Rules 2005
CATEGORY:	Procedural and other rulings
CASES CITED:	Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Limited (in liq) [2009] NSWCA 104 General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125
PARTIES:	Gerard McDonald - Plaintiff Stephen John Shone - First Defendant Steering International Business Limited - Second Defendant Horwath Management Services Limited - Third Defendant IBI Limited - Fourth Defendant Interlease Limited - Fifth Defendant Yaringa Investments Limited - Sixth Defendant
FILE NUMBER(S):	SC 2008/288996
COUNSEL:	Plaintiff - Mr DJ Fagan SC First Defendant - Mr JC Giles Third Defendant - Mr AS Bell
SOLICITORS:	Plaintiff - Grace Lawyers Pty Limited First Defendant - Deacons Third Defendant - Minter Ellison

- 16 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

SCHMIDT J

FRIDAY, 21 MAY 2010

2008288996 GERARD McDONALD v STEPHEN JOHN SHONE & ORS

JUDGMENT

1 HER HONOUR: These proceedings were commenced in December 2008 by a statement of claim in which the plaintiff, Mr McDonald, sought to recover some $462,837.82 from the first and third defendants. By amended statement of claim filed in March 2009, these damages were claimed to flow from the breach of a number of share purchase agreements and collateral agreements. Allegations of various misrepresentations were also made, as well as breaches of various legislation, including the Australian Securities and Investments Commission Act 2001 (Cth) and the Corporations Act 2001 (Cth).

2 This judgment deals with a number of notices of motion. The first was filed in October 2009 by the third defendant, Horwath Management Services Limited (‘Horwath’), a Hong Kong company. It sought orders pursuant to the Uniform Civil Procedure Rules 2005, setting aside the originating process so far as it was concerned; declarations that the Court had no jurisdiction over it; or that the Court decline to exercise jurisdiction in the proceedings; or permanently stay the proceedings; or strike them out as disclosing no reasonable cause of action.

3 When the hearing commenced it was announced that Mr McDonald did not intend to proceed against Horwath and would submit to an order that the proceedings against it be dismissed. The question of costs was not agreed. Horwath sought an indemnity costs order in its favour and Mr McDonald sought an order that each side bear its own costs.

4 There were two other motions filed by the first defendant, Mr Shone, who sought orders that the originating process had not been duly served; declarations that the Court had no jurisdiction over him in respect of the subject matter of the proceedings and in the alternative, that it decline to exercise that jurisdiction; or permanently stay the proceedings.

Costs of the proceedings against Horwath

5 In order to resolve the question of costs lying between these parties, it is necessary to pay some attention to the case brought against Horwath and the basis on which it pursued its motion. In written submissions it had been explained for Horwath that the case propounded against it should be struck out or summarily dismissed because it had such poor prospects of success, that it should not be permitted to go to trial (Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 at 575-6.) That case rested on affidavits sworn by Ms Chiu, Horwath’s Deputy Managing Director, in November 2009 and April 2010.

6 Mr McDonald’s case was based on three documents. The first, identified as ‘the Steering Information document’, was claimed to contain representations about the issue of shares in a company named Steering International Business Limited (‘SIBL’), a British Virgin Islands company. Horwath’s case was that this document was neither prepared, nor issued, nor authorised, nor despatched by Horwath and that on Mr McDonald’s own evidence, receipt of the Steering Information document did not lead him to make any application for shares in SIBL. Rather, he acquired SIBL shares from another company, Yaringa Investments Limited ('Yaringa'), the sixth defendant. It followed that Mr McDonald could not have relied on the Steering Information document, or the benefits said to flow from subscribing to the issue of SIBL shares in accordance with the document.

7 The second document was a letter of 5 March 2003. That was an unsigned document marked ‘draft’, which did not appear on any letterhead. It was a document apparently created by Mr Shone, the first defendant, who sent it to Mr McDonald. It was Horwath’s case that it did not make any representations contained in this document. It could not sustain the allegations made against Horwath. The third document was a letter of 11 March, again a document not on letterhead or signed and not created by Horwarth. Again it was Horwarth’s case that this document could not sustain the allegations made against Horwath.

8 It followed, it was argued for Horwath, that it did not engage in any conduct in Australia, or at all, by which it made the representations claimed against it in the amended statement of claim. Horwarth also argued that there were difficulties with service of the amended statement of claim, which should thus be set aside. It followed that the claim was hopeless and was always bound to be struck out, or summarily dismissed.

9 In the alternative it was argued that the Court should exercise its discretion to decline jurisdiction. Horwath was a Hong Kong Company. Mr Shone resided in Indonesia and all other defendants were foreign companies. Horwath claimed that it would suffer prejudice if it continued to be sued in Australia. If it submitted to jurisdiction and entered an appearance, it would wish to bring a cross claim against Mr Shone. No default judgment given by this Court on such a cross claim would be enforceable in Hong Kong, where it was to be inferred that Mr Shone may have assets, given that he had spent the last 10 years in that jurisdiction. That prejudice would not arise if the proceedings were brought in Hong Kong.

10 It was against that background that Mr McDonald announced that he would not proceed against Horwarth. It was Horwath’s case that there would be a departure from the usual costs order in its favour, in those circumstances. The proceedings had no foundation and ought never to have been brought, Even if that were not accepted, once Ms Chui’s affidavits were served, the possibility of any foundation for the case against Horwath being established fell away. The proceedings should have been withdrawn at that point, rather than requiring Horwath to go to the expense of preparing its motion for hearing, only to have the necessary concession made on the morning of the hearing.

11 The case for Mr Shone was that information provided by Horwath itself had led to the proceedings being brought against it. The Steering Information document had identified Horwath as providing custodial services. When information and documents were sought from Horwath before the proceedings were commenced, Horwath advised that it had ceased providing custodial services in 2004 and directed Mr McDonald’s enquiries to Mr Shone. That information was incorrect. Another company had in fact provided those services. When the information was further pursued with Horwath, Mr McDonald was advised that Horwath had recently resigned as a director of SIBL.

12 This explained why proceedings had later been brought against Horwath and why no costs would now be awarded in its favour. Horwath’s response to the enquiries made of it had encouraged the litigation. That information suggested that Horwath had a responsibility for things done in the name of SIBL. Annexures to Ms Chiu’s affidavit showed that another company, Prinza Limited ('Prinza') had provided Mr Shone with letters addressed to Mr McDonald. Mr McDonald had not received those letters. Instead, Mr Shone had provided him with documents not on letterhead, but which purportedly had come from Horwath. The fact that Mr Shone had transferred the contents of the letters from Prinza to another piece of paper, made no difference. Horwath’s involvement was thereby further revealed and it followed that no order would be made in its favour against Mr McDonald.

13 In those circumstances, it was argued for Mr McDonald, there would be a departure from the usual costs order, with the result that each party would be ordered to bear its own costs.

14 In reply Horwath submitted that Mr McDonald’s submissions overlooked that the heart of the allegations he made against it was that Horwath had made the representations relied on by Mr McDonald in publishing the Steering Information document and the two letters. Mr McDonald’s own evidence showed that he paid Mr Shone direct for the purchase of SIBL shares from Yaringa and that he had never sought to have shares to be issued to him in accordance with the Steering Information document. Nor did he receive new shares issued in SIBL in accordance with that document. It followed that his misrepresentation case was fundamentally flawed from the outset, notwithstanding the information received from Horwarth.

15 Even if originally confused, the true picture became obvious once Horwath’s affidavits were served. The proceedings against it ought then to have been discontinued without requiring it to go to the expense of preparing for the hearing of its motion. In those circumstances an indemnity costs order would be made in its favour, at least from the time when Ms Chiu’s affidavits ought to have been appreciated.

16 Having considered the competing contentions, I am satisfied that while it may have been the case that Horwath was joined as a defendant in the proceedings as the result of incorrect advice which it gave Mr McDonald, nevertheless it may not be overlooked that the claims which he brought against Horwath had no foundation, as was accepted on the morning of the hearing of this motion.

17 The Steering Information document which lay at the heart of the case against Horwath was concerned with new shares being issued in SIBL. Mr McDonald never took up such shares. Instead, he paid Mr Shone for SIBL shares which he purchased from Yaringa. The other documents Mr Shone supplied to Mr McDonald which purportedly came from Horwath were plainly not created, provided or authorised by it. None of the documents on which Mr McDonald relied provided any basis for the proceedings brought against Horwath.

18 Once Ms Chui’s evidence was received, the proceedings ought not to have been further pursued against Horwath. Thereby it became unarguably apparent that they had no prospects of success. Horwath had not been involved in the transaction which underpins Mr McDonald’s case; it had not made representations to Mr McDonald on which he relied; it was not in breach of the collateral agreements about which he still complains; and was not otherwise involved in the misrepresentations about which he complained in the amended statement of claim. As well as abandoning the case against Horwath on the morning of the hearing, it was also then announced that the representation case would not be pressed against Mr Shone. Mr McDonald is also not pressing his case against any other defendant.

19 This situation but underlined that this is a case where, as a matter of justice, there must be a costs order in favour of Horwath on the usual basis initially, and an indemnity costs order after service of Ms Chiu’s second affidavit and the written submissions. Thereafter the case should not have been pressed further against Horwath. The costs of preparation of the motion for hearing were just wasted.

20 The parties were directed to file and serve written outlines of their submissions. Horwath filed its submissions on 15 April 2010, but no submissions were filed for Mr McDonald. Instead it was announced on the morning of the hearing of the motions that the proceedings against Horwath would not be pursued. I am satisfied, in the circumstances, that it is just that Mr Shone bear Horwath’s costs on the usual basis up until a reasonable time after service of Ms Chiu’s second affidavit and receipt of Horwath’s submissions and thereafter on an indemnity basis. Accordingly, I will order that Mr McDonald pay indemnity costs from 21 April, that being the date by which his written submissions should have been filed and served.

Mr Shone's motions

21 The only part of the case which is to be pressed against Mr Shone was described as a contractual case based on collateral agreements under which Mr McDonald has a claim to certain profits earned through the investments of SIBL which have not been accounted to him. It was accepted for Mr McDonald that there were difficulties even with this case, which would thus require some repleading.

22 The facts alleged against Mr Shone in the amended statement of claim were claimed to have occurred between December 2002 and May 2003, while he lived in Hong Kong. It was alleged that Mr Shone, a director of SIBL, approached Mr McDonald, who lived in New South Wales, about an opportunity to invest in SIBL, a company established to invest in other companies in which Mr Shone had an interest through other entities to which it is unnecessary to refer at this point. They were Inprojects Limited (‘IPL’), a Hong Kong company and ISIS Group Holdings Pty Ltd, (‘ISIS’), an Australian company.

23 In early 2003, Mr McDonald purchased a parcel of SIBL shares from Yaringa, apparently another of Mr Shone’s companies. In March 2003, he purchased a further parcel of SIBL shares from Yaringa and in May, a third parcel of such shares. Mr McDonald was paid certain, but not all of the dividends which he claims he should have received and in July and December 2005, the ISIS and IPL shares were sold, without any accounting to Mr McDonald.

24 It is alleged that this involved the breach of certain collateral agreements entered between Mr McDonald, Mr Shone and certain of the defendants in 2003, whereby it was warranted that SIBL had, or would acquire the ISIS and IPL shares. The express or implied terms of these collateral agreements were claimed to be:

(a) Shone and the Shone Companies warranted that he or they was or were the owner of the ISIS, ISIS Group and IPL shares acquired or alternatively being acquired by SIBL;

(b) Shone and the Shone Companies warranted that he or they had transferred the Shone ISIS Interest to SIBL;

(c) In the alternative, Shone and the Shone Companies warranted that he or they will transfer the Shone ISIS Interest to SIBL;

(d) Shone had the Shone Companies warranted SIBL would acquire ownership of shares in IPL.

25 The sale of the ISIS and IPL shares in 2005 gave rise to a dispute between Mr McDonald and Mr Shone. For Mr Shone it was argued that the current pleadings do not allege that SIBL would make any payments to Mr McDonald on the sale of the shares, or that the failure to make the payments claimed involved any breach of any warranty. This difficulty, it was argued, was not curable by any pleading amendment, given Mr McDonald’s affidavit evidence, which could not prove his pleaded case. The words on which he relied as his best recollection were not promissory. This was disputed for Mr McDonald.

26 In any event, it was argued for Mr Shone, the parties later departed from the proposal which was originally discussed between Mr McDonald and Mr Shone, namely an acquisition of shares in SIBL under the Steering Information document. Instead, shares were acquired from Yaringa under agreements entered between January and May 2003. It followed that any breaches of warranty were statute barred in April 2010, given that they were breached on the day that the contracts were entered into. Again, this was disputed for Mr McDonald.

27 There are questions as to when the limitation period in respect of the breaches of the collateral agreements alleged by Mr McDonald expire. It was conceded for Mr Shone that the furthest point in time at which there could have been a breach was in 2005 or 2006, when the shares were sold and in that event, there was no breach of any limitation period.

28 Against that background, I turn to the matters which must be determined in relation to Mr Shone’s motions.

Service

29 The proceedings were commenced in December 2008 and the time for service of the statement of claim expired on 18 June 2009 (see Rule 6.2(4) of the Uniform Civil Procedure Rules). The statement of claim was not served on any defendant within that time.

30 An application for an extension of time to serve the proceedings was granted by Registrar Atkinson on 18 June 2009, which extended the time to 18 December 2009 (see Rule 1.12 of the Uniform Civil Procedure Rules). That application was supported by an affidavit sworn by Mr Ton, the plaintiff’s solicitor, which it was alleged had not frankly revealed all of the relevant circumstances. Mr McDonald gave affidavit evidence on which he was cross examined. This was relied on to show that Mr Ton’s affidavit was not frank.

31 It was submitted for Mr Shone that what was not disclosed was that in respect of some parts of the claim, the limitation period had expired; that Mr McDonald was in email communication with Mr Shone and was aware of where he was residing in Bali, having obtained that information from his ex wife, but there had been no attempt made to serve him. Failure to disclose that the limitation period in relation to part or all of the contract claim had expired, had the consequence that the order should be set aside. (See Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Limited (in liq) [2009] NSWCA 104).

32 Mr Shone’s case was that the extension of time should be set aside and Mr McDonald refused leave to serve it afresh. This was pressed even though it was accepted that this would leave Mr McDonald free to bring fresh proceedings, because at least in part, the proceedings were not even yet out of time.

33 Mr Shone was personally served with the statement of claim in Bali on 21 August 2009 and corporate defendants in Hong Kong were served on 14 September. For Mr McDonald it was argued to be relevant that Mr Shone’s challenge to this service was itself filed outside the time fixed by Rule 12.11 of the Uniform Civil Procedure Rules. It should have been filed by 19 September, but his first motion was not filed until 25 September and the second until 15 December.

34 Mr McDonald’s case was that Mr Ton’s affidavit had not misled the Registrar and that necessary disclosure had been made, with the result that the order for service would not be set aside.

35 For the following reasons, I am satisfied that Mr McDonald’s case must be accepted.

36 Firstly, it is apparent that there were certain departures between Mr Ton’s affidavit and Mr McDonald’s evidence, but even if all of his evidence had been put on, it seems to me that an extension of time would have followed.

37 Mr Ton said in his affidavit that Mr Shone had acknowledged at least part of the debt owed to Mr McDonald; that Mr McDonald did not know where Mr Shone was currently located or domiciled; that his last known address was in Bali and that he had variously resided in Hong Kong, Macau, Singapore and Bali. Contact with Mr Shone’s former wife and colleagues and associates was described, but Mr Shone’s whereabouts was said not to be known. Efforts to engage a Bali lawyer or process server were described, with a firm prepared to effect service having been located in May. Steps taken to have the amended statement of claim translated into Indonesian for the purpose of service were referred to and it was said that terms were being negotiated for personal service.

38 The following was not revealed; firstly, that Mr McDonald was in email communication with Mr Shone, who was believed to be in Bali, where he owned three properties, but there was uncertainty as to where he was residing because of renovations and a property settlement in a matrimonial dispute; secondly, that the business address of the corporate entities through whom Mr Shone conducted his businesses were known; and finally that Mr McDonald feared that Mr Shone would attempt to evade personal service, if put on notice of the commencement of the proceedings and that service had not been attempted.

39 Mr McDonald gave evidence about these matters. He had long been an acquaintance of Mr Shone, had worked with him and feared that Mr Shone would evade service, if he became aware of the proceedings. Mr McDonald’s legal advice had been that service had to be effected personally on Mr Shone, who he understood had moved permanently to Bali. Service had not been attempted at the address which Mr Shone’s former wife had provided, because Mr McDonald was awaiting advice that they could take the case forward. There was uncertainty that Mr Shone was at the address Mr McDonald had been provided, or at one of several other properties which he owned in Bali. Mr McDonald denied that there had been any deliberate decision not to serve Mr Shone. Work on the case was being pursued. Service was finally effected personally in Bali by a mutual acquaintance of Mr Shone and Mr McDonald in August 2009.

40 On the evidence I am not satisfied that there was any attempt to mislead the Registrar. Nor am I satisfied on the evidence that the claims which Mr McDonald still wishes to pursue were statute barred at the time of the application to the Registrar. That will depend on evidence yet to be led and tested.

41 It is Mr McDonald’s case that the words he claims were used by Mr Shone were promissory; that the obligation to have SIBL acquire the shares in question in accordance with the alleged collateral agreements was an ongoing obligation; that the warranties given were false and there was a failure to make payments due under them. The shares were finally sold in 2005 or 2006 and thus the claims which it is sought to press were not statute barred, when time to serve was extended in 2009.

42 It may be that the shares should have been acquired when the alleged collateral agreement was made, or at least within a reasonable time of that agreement having been reached. That the obligation was an ongoing one is also arguable. The parties appear to have acted in accordance with the alleged collateral agreements, at least for a time, given the dividends paid to Mr McDonald. Other dividends were not paid, but when they fell due is unclear. Certainly once the shares were sold, there must have been a breach of the collateral agreement, if it was made. That claim is not time barred. This is not a case like that considered in Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Limited (in liq).

43 Undoubtedly, the position as to service could have been more fully explained to the Registrar in 2009. That Mr McDonald feared that Mr Shone would evade service if he became aware of the proceedings was not explained. His solicitor was certainly investigating how the initiating process could be served upon Mr Shone personally in Bali. This appears to have taken an inordinately long time and involved steps which proved unnecessary, given that service was effected by an acquaintance who went to Bali himself to serve the documents. That the Registrar was sought to be misled was not shown.

44 Also to be considered is that it was accepted for Mr Shone that even if the Registrar’s order were set aside and leave to serve reconsidered and refused, Mr McDonald could still bring fresh proceedings. In those circumstances, I am satisfied that justice would not be served by granting the orders sought by Mr Shone.

45 As was argued for Mr McDonald, while the current pleadings are deficient, this is not a case where it may be concluded that there was a deliberate decision to delay service, in order to gain some advantage. To the contrary, the difficulties sprang from Mr Shone being in Bali; Mr McDonald’s fear that if he got wind of the proceedings, he would seek to avoid service; and the legal advice given that personal service was necessary. The more efficient and cost effective course may have been to seek an order for substituted service, but that the course which was pursued was designed to achieve either delay, or any advantage to Mr McDonald was not made out.

46 It follows that the ex-parte order to extend time to serve the pleadings should not be set aside.

Forum

47 It was accepted that the basis for Mr Shone’s forum argument largely fell away once it was announced that Mr McDonald would not pursue any claim against Horwath. There was an obvious basis for an argument on Horwath's part, that Mr McDonald’s claim should have been brought against it in Hong Kong. SIBL is a Hong Kong company administered there. What was alleged against Horwarth had occurred in Hong Kong. It wished to pursue a cross claim against Mr Shone in Hong Kong, where it appeared he had assets and in circumstances where there would be difficulties in enforcing any judgment it obtained against him in this Court, in Hong Kong.

48 Mr McDonald’s case was that he was approached by Mr Shone in New South Wales. The collateral agreements which they made there concerned in part the acquisition of shares by SIBL in ISIS, an Australian company carrying on business here. The evidence did not suggest that the laws of Hong Kong governed the collateral agreements. It was intended that when SIBL received dividends from ISIS, Mr McDonald would receive a proportion and he did receive some dividends. The records of this company are in Australia and Mr McDonald and witnesses who he proposes to call, including his accountant who was involved in the discussion of the obligations under the collateral agreements with Mr Shone, all reside here.

49 While certain relevant events plainly occurred in Hong Kong, that New South Wales is a clearly inappropriate forum for the case pressed against Mr Shone, was not established. As was argued for Mr McDonald, the offer was communicated to him in Australia. The primary subject of the agreement was the acquisition of shares in an Australian company carrying on business here. Dividends were to be paid to Mr McDonald here and damage was suffered here.

50 It follows that this part of Mr Shone’s case may also not be accepted.

Is the pleaded claim hopeless?

51 It was argued for Mr Shone that the pleaded case was hopeless. The facts alleged were not a breach of the terms of the alleged collateral agreements. SIBL’s failure to pay dividends was not a breach of the warranty pleaded and whether the claimed warranties were true or false, they could not have caused any loss. Furthermore the words relied on were not promissory. Claims for unpaid dividends and proceeds of shares sold were claims in debt, but not claims which could be brought against Mr Shone as breaches of the warranties claimed to have been given under the collateral agreements.

52 Nor could these deficiencies be addressed by pleading amendment, given the evidence which Mr McDonald had given.

53 For Mr McDonald it was accepted that the current pleadings did not best represent his case, which was that Mr Shone personally made promises for which the consideration was that Mr McDonald would enter certain transactions. It was initially envisaged that Mr McDonald would subscribe for shares in SIBL. The nature of the transaction altered during the course of the discussions between Mr Shone and Mr McDonald. Mr McDonald finally paid Mr Shone for SIBL shares purchased from Yaringa. The evidence would establish that what was concluded between them was promissory. That is, that Mr Shone would cause SIBL to acquire the underlying investments in ISIS, a profitable company successfully trading in Australia, and that SIBL would account to Mr McDonald for dividends earned.

54 The breaches of the collateral contracts relied on were not once and for all breaches, they were ongoing, concluding with the failure to account for the proceeds of the shares when they were sold in 2005. The pleadings sought to recover the consequences of the breaches, in respect of unpaid dividends and the proceeds of the sales.

55 It was accepted that there was a pleading inadequacy in that there was not pleaded an obligation on Mr Shone to cause SIBL to make payments sought, but that was a claim implicit in the pleadings already on foot. Leave to amend would be sought, to make the allegations of obligation correspond with the allegations of breach.

56 I am satisfied that the claim may not be dismissed as a hopeless one. While the pleadings admittedly require amendment, it is apparent that the claim that there was a breach of the collateral agreements when SIBL did not pay dividends due and failing to account when the shares were disposed of, is what the statement of claim is directed to. It is claimed that the words relied on by Mr McDonald were promissory. I am not satisfied that Mr McDonald’s evidence precludes such a conclusion. The claimed failure to perform was ongoing throughout 2003, continuing to 2005 when SIBL failed to account to Mr McDonald for the proceeds of the sale of the shares. Mr Shone appears to have acknowledged the debt, at least in part, in 2006.

57 It follows that the problems with the pleadings could plainly be addressed, without injustice being done to Mr Shone.

58 Dismissal of a case at a stage such as this requires that Mr Shone establish that there is no reasonable cause of action disclosed on the pleadings and where it is clear that Mr McDonald’s case is so untenable that it cannot possibly succeed. It is a step which must be taken with great care and where pleading amendment could not address the difficulty. The test is that discussed by the High Court in General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125.

59 I am satisfied for the reasons which I have explained that this is not such a case. It follows that Mr Shone’s motions must be dismissed. The usual order would be that he must bear Mr McDonald’s costs of the motion, as agreed, or assessed. If there is any disagreement in that respect, the parties should approach.

Orders

60 For these reasons, I order that:

1. The proceedings against Horwarth be dismissed.

2. Mr Shone's motions be dismissed.

3. Mr McDonald bear Horwarth’s costs as agreed until 21 April 2010 and from that date on an indemnity basis.
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