Midland Mining Nl (ACN 021 796 974) v Ewart, N.M.

[1992] FCA 186

FEDERAL COURT OF AUSTRALIA	)
1
TASMANIAN DISTRICT REGISTRY )	T No G 3001 of 1992

)

GENERAL DIVISION )

IN THE MATTER OF MIDUUYD MINING NL (ACN 021 796 974)

B E T W E E N :

MIDLAND MINING NL

A N D :

NORMAN MARSHALL EWART AND OTHERS ,

,<

-:	NORTHROP J
PLACE :	HOBART
m:	26 MARCH 1992

EX TEMPORE REASONS FOR JUDGMENT

The matter before the Court is a motion for certain orders sought by the respondent Norman Marshal1 Ewart pursuant to notice dated 25 March 1992. The orders sought are as follows :

5. The Applicant's Statement of Claim filed herein be	struck (sic) on the grounds that it is embarrassing and
may delay a fair trial of the action." It became obvious during the course of submissions by

"1. Pursuant to the liberty to apply granted by His Honour Mr Justice Heerey in Orders made in this action on 17 March, 1992, all of the Orders made aforesaid be set aside.

2. The time for the hearing of the remainder of this motion be abridged.

3. The Applicant give security for the costs of this

action in the sum of $60,000 and that all future action
be stayed pending the provisions of such security.

4. The action be transferred to the Sydney Registry of the Federal Court.

counsel for the respondent Ewart that as far as the claim for the security for costs was concerned, it would not be pursued at the moment but that at a later stage it might be renewed. Accordingly nothing further need be said about that order. It is also apparent that there is no material before the Court at the moment to support order 4 namely that the action be transferred to the Sydney registry of the Federal Court, and nothing further need be said about that.

The issues before the Court, therefore, are essentially whether the orders of the Court made on 17 March 1992 should be set aside or varied in any way whatsoever. I will deal with the other question relating to the statement of claim later.

This is an interlocutory matter but in order to

understand it some reference will need to be made to the

remembered that this an interlocutory matter. The Court has	history of the application. At the same time it must be
not had the opportunity or the time to consider the matter in any great detail and accordingly the views about to be expressed are of a tentative nature only and have been formed for the purposes of this interlocutory matter only. Accordingly the views expressed should not be used as having any final force or effect. But at the same time, it is noted that some difficult questions both of practice and procedure and of substance have been raised in the conduct of the hearing of this motion and it is desirable that some tentative views should be expressed about those matters.
By way of background; matter No 3002 of 1991 was an action commenced in the Federal Court in the Tasmania District Registry on 26 June 1991 by a company Kolya Management Pty Limited against a number of respondents including Midland Mining NL and Norman Marshal1 Ewart. That application was brought pursuant to the provisions of the Corporations Law in the matter of the Midland Mining NL No 021 796 974. 1n summary form, the claim was based upon an allegation of oppression of minority shareholding in Midland Mining by the second, third and fourth respondents, and in particular Mr Ewart, who, I will assume, for practical purposes, was the controlling mind behind Midland Mining NL. That action had a rather chequered history but eventually it appears that the matter was settled pursuant to terms of agreement in relation to the claims by Kolya against Midland Mining, the second
against the fourth respondent, Mr Ewart. respondent and the third respondent but was not settled
On 4 February 1992, the court constituted by Lockhart J, made a number of orders which appear to be in the form of consent orders, the relevant one of which is as follows:

"That the applicant (Kolya Management) empowered to take action or initiate proceedings whether legal proceedings or otherwise, in the name of the first respondent (Midland Mining) to:

(a)	protect or secure the flrst respondent's interest or interests in the Olinghouse Mine, Newgold Incorporate, or both; and
(b)	recover loss or damages from any party contributing to or causing loss or damage to the first respondent in respect of or arising out of the transaction or transactions between the first respondent and Newgold Incorporate and referred to in the affidavit of Nikolai Petrovski sworn on 3 February 1992 and filed herein."

That is the relevant order for present purposes

The second group of orders were made by the Court constituted by Heerey J on 18 February 1992 and they were orders made by consent. A memorandum of the consent orders was given to the Court slgned by the solicitors for Kolya Management and by the solicitors for all the respondents. Attached to that memorandum of consent orders was an agreement between Kolya and Midland Mining. Under that agreement there was what was said to be a grant of agency given by Midland to Kolya of the right to take action or to institute proceedings on Midland's behalf to recover all or any money paid by

Midland for or to secure Midland's interest or interest in the	mining project in the United States of America known as the
Clementine, and the mining project in the United States of America known as the Lower Olinghouse, or both; to prosecute Midland's former directors or officers, or both, except Bay and Muhlberg, who were the second and third-named respondents in matter No 3002 of 1991, for breaches of the Companies Code, the Corporations Act or breaches of the common law in respect of their duties as directors or officers, or both; and to take any action aforesaid either by way of court proceedings, arbitration, settlement or otherwise as it in its absolute discretion considers necessary elther in Australia, the United States of America or elsewhere.
By the same order, the matter was adjourned to the next available date at the convenience of the Court for directions. The matter is due to come on for directions before the Court in Hobart on 6 April of this year. Thus, pursuant to those orders and the agreement, it appears that the present applicant, Midland Mining NL is now taking action at the direction of Kolya and that Kolya and the people controlling Kolya are the minds of Midland Minlng even though Midland Mining was a respondent to an action in which those controlling minds were the applicants.
In the light of this background information, by application filed on 11 March 1992, Midland Mining NL is suing six respondents, the first of whom is Norman Marshal1 Ewart, those respondents being said to be officers or the controlling
persons of Midland Mining NL and are being sued in the matter of Midland Mining NL. The application, which is in the normal
form, states that on the grounds in the accompanying statement of claim the applicant claims first some 16 declarations but of those 16, eight are under the Companies Code and eight are under the equivalent provisions of the Corporations Law. So for practical purposes, there are eight declarations being sought, one is based upon a breach of subs 232(2) of the Corporations Law, the duty of officers or directors to act honestly. The declaration, in each claim, is in a similar form, namely a declaration that the respondents or some of them have breached the relevant section of the Corporations Law while an officer of the applicant. The second declaration relates to the subs 232(4) of the Corporations Law, the duty to take care and diligence. The third relates to subs 232(5) of the Corporations Law, belng a duty not to make improper use of information. The fourth relates to subs 232(6) of the Corporations Law, the duty of not to make improper use of position. The fifth relates to s231 of the Corporations Law, the failure to disclose an lnterest in contracts. The sixth relates to s236 of the Corporations Law, namely the requirement to give notice of interest in other companies and a failure to give notice of that interest. The seventh is for a declaration that the respondents have breached s1307 of the Corporations Law, which creates a criminal offence of falsification of books. And the eighth seeks a declaration that the respondents have breached s1309 of the Corporations Law, which creates a criminal offence of giving false
information. By way of aside, questions are raised immediately whether declarations can or should be made in
civil proceedings in relation to a criminal offence.
An order is also sought prohibiting the respondents from managing a corporation for five years, or such other period the Court may determine, pursuant to s230 of the Corporations Law, and such other orders as the court considers fit. In addition, the applicant claims against the respondents and each of them compensation, profits, damages, special damages, exemplary damages and costs. The first directions hearing of that application is 6 April 1992. It is noted that that return date is the same date as the date on which the directions hearing is to come before the Court in matter No 3002 of 1991.
The statement of claim was filed on 11 March 1992 and is in a form which, on its face, quite clearly does not comply with the Federal Court Rules. It is embarrassing and normally would be struck out. Apparently, the appl~cant had difficulty in serving the respondents, but the respondent Ewart was in fact, served in Sydney on 14 March 1992, but it appears that the other respondents have not been served and for the balance of these reasons, reference will be made only to the respondent, Mr Ewart.
After the application and statement of claim had been served on the respondent but before an appearance had been
entered, and it is noted that Mr Ewart entered an appearance on 23 March 1992, the applicant sought interim orders pursuant
to a notice of motion dated 11 March 1992 and filed on that date, being the date on which the application was filed and also the statement of claim was filed. This notice of motion was not, in fact, served on Mr Ewart.
The application does not contain in it any notification that interlocutory or interim orders are being sought. In this regard reference is made to the Federal Court Rules and Form 5 of the First Schedule to the Rules, which make provision for such claims to be included in the application. That is the normal way by which matters of this kind are dealt with. But the notice of motion as I said was not served but the orders sought were numerous, a number of which relate to the seeking of orders for substituted service which are not relevant for present purposes. The orders sought included an order that all the affidavits filed in matter No 3002 of 1992 be used and applied in this action - No 3001 of 1992. The following orders were then sought:

"2. That the first respondent:

(1) deliver up to the Court his passport;

(2) be prohibited from leaving Australia without the consent of the Court;

(3) upon his failure to so deliver up his passport the Commissioner of the Australian Federal Police by his servants or agents ( "the Commissioner") be authorized to seize, retain and deliver up the passport;

(4) the Commissioner be authorized to restrain him from

leaving Australia without the first respondent first
obtaining the consent of the court to so leave;

(5) if the first respondent has already departed Australia then he is to deliver up his passport immediately upon his re-entry into the country and in the event that he fails to do so the Commissioner is given the power to seize, retain and deliver up or to restrain as aforesaid."

" 3 . That the first respondent within 48 hours from the service of this order deliver up to the Applicant all of its correspondence, agreements, documents, letterhead and company property whatsoever retained by him and in particular and without limiting the generality hereof:

(1) the letter dated 14 February 1991, and all correspondence and documents establishing or purporting to establish the alleged agreement between the first respondent and Newgold Incorporate;

(2) the letter dated 27 February 1991, and all correspondence and documents purporting to establish the alleged agreement between the first respondent and Can Austra Capital Corporation;

(3) the letter to the US Immigration and Naturalisation Service concerning Cameron Glover."

The other orders sought need not be referred to in any detail, but it must be noted that when this matter came on for hearing yesterday, counsel for Mr Ewart, the respondent had not seen or been given a copy of that notice dated 11 March. He did not know on what basis the orders had been made.

On 17 March 1992 an application was made for orders in a form similar to those in the notice dated 11 March. For practical purposes it can be treated as an ex parte oral application for orders of which no notice had been given to the respondent Ewart. Although the notice of motion is on the

made to it to show part of the problems of a procedural kind	file, for practical purposes it can be ignored. Reference is
which have arisen in this case.
On 17 March 1992 the Court constituted by Heerey J, made a number of orders as follows:

"1. The first respondent deliver up his passport to the

Court.

2.   The first respondent be prohibited from leaving Australia before 7 April 1992 without leave of the Court.

3.   The first respondent deliver up to the Court all correspondence, notes, memoranda and other documents relating to any agreement or arrangement between Midland Mining NL and Newgold Incorporate, and between Midland Mining NL and CanAustra Capital Corporation touching or concerning the Lower Olinghouse Gold Project and in particular a letter from Midland Mining NL to Newgold Incorporate dated 14 February 1991, and a letter from Midland Mining

NL to CanAustra Capital Corporation dated 27

February 1991.

4.  The applicant have leave to serve interrogatories for the examination of the first respondent as to the agreements referred to in paragraph 3 of this order on Messrs Page Seager of 39 Murray Street, Hobart.

5.   The f~rst respondent file and serve answers to interrogatories within seven (7) days of service.

6.   A copy of this order and the affidavits of Nikolai Petrovsky sworn 17 March 1992 in these proceedings and 25 February 1992 in proceedings TG 3002 of 1991 be served on Messrs Page Seager and on the first respondent at 52 Hayle Street, St Ives in New South

Wales. "

Other orders were then made which I need not refer to except the liberty to apply on 24 hours notice.

When the motion by the respondent Ewart came on for hearing before me, counsel appearing for Mr Ewart expressed some concern as to what basis the orders had been made. There was no indication in any of the paperwork served on him, or in the orders, of the source of the power pursuant to which those orders were made. The notice of motion of 11 March did not refer to any source of power, but in any event the respondent had not been served with a copy of that notice of motion. The application itself did not seek orders of that kind whether final or of an interlocutory nature. The orders on their face, as far as 1, 2 and 3 were concerned, appear to be final orders although they were made in the application. Orders 4 and 5 which related to interrogatories suggested the rather unusual step of interrogatories before issues were determined. I should also add that order 8, which I did not refer to earlier, gave leave to the applicant to file and serve a fresh statement of claim. That order had been made, obviously, on the basis that it was realized that the existing statement of claim was embarrassing, had no useful effect and had to be replaced. And so once the order had been made there was no statement of claim. Counsel for the respondent just did not know what the true position was in relation to where the respondent stood.

It transpires that the basis upon which the orders were made in relation to the passport, the leaving of Australia and what can be described as discovery and interrogatories, were all sought pursuant to the provisions of the Cor~orations Law,	and in particular sections 1323 and 1324. It is also clear	that in support of the orders what was being relied upon were
the two affidavits referred to in that order, copies of which were to be served on the solicitors who, as it turned out, are the solicitors for Mr Ewart. In these circumstances, they set out the facts upon which the orders were being sought. But nowhere was there any reference to the source of power.
Sections 1323 and 1324 of the Cor~orations Law contain fairly dramatic provisions. On their face they seem to confer a remedy which is to be enforced by a proceeding in a court, in the present case the Federal Court, but, in conformity with the Law, they can be brought in other courts. As far as each section is concerned, the remedies available provide for the giving of protection to persons by the preservation of property of a corporation which otherwise might be dissipated and from which persons can then recover damages. The powers are very extensive and have been described as being draconian. They enable a receiver to be appointed to carry on the business of a corporation or of a natural person, and there are very wide powers to grant injunctions.
Section 1323 is not an easy section to understand, but in summary form it appears that if a condition precedent is established, being either one of the three set out in paragraphs (a), (b) or (c) of subsection (l), and the court considers it necessary or desirable to do so for the purpose of protecting the interest of a person called the aggrieved
person, to whom the relevant person, being the person who may
be liable for damages or other liability, to pay money in
respect of debt, damages, compensation or otherwise or to account for securities, futures, contracts or other properties, then the court may, on the application by the Commission or by an aggrieved person make one or more of a number of orders. There are then set out orders that can be made and which seem to be directed to the preservation of property. Paragraph (h) is the order enabling the court to appoint a receiver or a receiver and manager. Paragraphs (j) and (k) are of importance. They read as follows:

"(j) If the relevant person is a natural person an order requiring that person to deliver up to the Court his or her passport and such other documents as the court thinks fit.

(k) If the relevant person is a natural person, an order prohibiting that person from leaving Australia without the consent of the Court."

Reference has been made to the three conditions precedent in subsection (l), any one of which is sufficient to found the jurisdiction to make orders specified in subsection (1). Those conditions precedent can be summarized:

(a)	the condition precedent is the existence of an investigation by the Australian Securities Commission, under the Cor~orations Law that constitutes or may constitute a contravention of the law. It is quite clear that that condition	precedent does not predicate the existence of any	legal proceedings.
(b)	the condition precedent is that a prosecution has been begun against a person for a contravention of the law. Here, there is no such prosecution that the Court is aware of. There is, certainly no application in the Federal Court, and could not be, for a prosecution of the kind which requires trial by jury, ie, an indictable offence.
(c)	this is the condition precedent relied upon, namely the existence of a civil proceeding which has been begun against a person under the Law. Then, it is said, that the court has power to make any of the specified orders.

Subsection (3) provides for interim orders, and I read the whole of that subsection:

"Where an application is made to the Court for an order under subsection (l), the Court may, if in the opinion of the court it is desirable to do so, before considering the application, grant an interim order, being an order of the kind applied for that is expressed to have effect pending the determination of the application."

Subsection (4) provides that:

"On an application under subsection (l), the Court shall not require the applicant or any other person, as a

condition of granting an interim order under subsection (3), to give an undertaking as to damages."

Section 1324 is of a similar type. It provides in substance, that where a person has engaged in or is engaging in or about to engage in conduct that constitutes or could constitute a contravention of the law, and so on:

"the Court may, on the application of the Commission, of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first-mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing."

Subsection (2) confers similar powers where a person has refused or failed or is refusing to fail or proposing to refuse or fail to do an act or thing that the person is required by the Law to do, the court may on the application of the Commission or any other person whose interests have been or are or would be affected by the refusal, grant an injunction on such terms as the court thinks appropriate, requiring the first-mentioned person to do that act or thing. Subsection (4) allows ~nterim injunctions to be made. And subsection (8) provides that no undertaking as to damages need be given where interim orders are made. Subsection ( 9) provides :

"In proceedings under this section against a person the Court may make an order under section 1323 in respect of the person."

March, insofar as it purports to be based on s1323 and is an Attention is drawn to the fact that the order made on 17 interim order, does not comply with subsection 1323(3) in that it does not express to have effect pending the determination of the application. On its face the order appears to be final. But of more importance, it must be assumed that this cannot be any final order. It was made ex parte without notice to the other side and cannot finally determine the application for the orders under subsection (l), because under subsection (3), the lnterim orders are made, "before considering the application" that is, before considering whether the final orders of the kind being sought in subsection (1) should be made.

During the course of submissions, the Court raised the question whether an application under s1323 should be by way of separate application or not. Or putting it another way, could the interim orders be made by way of motion in an existing application in the Federal Court not being an application under s1323 or s1324 of the Law. I have already stressed the fact that as far as the conditions precedents (a) and (b) are concerned, there would of necessity need to be a separate application to the Federal Court, because those conditions precedent do not require the existence of a proceeding of a civil nature in the Court.

I can see nothing to prevent a claim being made by way of application seeking relief under other provisions of the Cor~orations Law, and in that application, seeking orders	under s1323 and s1324, and in that proceeding either ex parte	before the application is issued or served, orders being
sought of an interim nature under subsection 1323(3). The former course would overcome the problem of a respondent, on being served with an application, dissipating or getting rid of property, or departing the country. But I have grave doubts as to whether it is permissible to seek orders under s1323 or s1324 in cases where there is no application pending in the Court for orders of the type specified in subsection 1323(1) of the Law since, there would be no existing application under subsection 1323(1) and interim orders could not be made before considering that non-existing application.
This point has not been relied upon expressly by the respondent Ewart. I express no final view on it. The two cases in which I have had previous experience of proceedings under these two sections were cases where the Commission had been carrying on an investigation under paragraph 1323(1)(a) of the Law and an application had been issued seeking orders referred to in one or more of the paragraphs (a) to (k) of subsection (1). At the same time, interim orders were being sought under subsection (3). In one of those cases, the interim order was sought before service of the application. In the other one, they were sought after service, but within a very short time-frame, but nevertheless a number of people did appear to oppose the making of the interim orders.
I do express the view that if an application has been Coroorations Law, at least the Court knows precisely what is issued and it is said to be based upon s1323 or 51324 of the
being sought. The applicant will have turned his mind to the requirements of the sections and the procedures which are so important in a case where orders of serious nature, as those sought in this case, of depriving a person of his passport, can be used to ensure that no injustice is done to a person.
Even though that person may be a rogue or may have committed breaches of the Coroorations Law, that person is still entitled to the proper process of law. That person is not an outlaw.
In the present case, I do not need to decide these matters, and I will treat the motion, whether oral or pursuant to the notice, as being a sufficient basis for an order under s1323 or s1324 of the Cor~orations Law. This leads me to the matter which I must decide today. There are, even here, some problems. It appears that one of the purposes for which this action is being taken and for which this procedure of the interim orders is being sought, is to enable the applicants to obtain information and material and documents from the respondent Ewart via the process of the Court in this action and to use those documents and information in an action in the United States of America. This immediately gives rise to a nice question as to whether such an action constitutes or would constitute a contempt of court. There are authorities on this question. I do not propose to pursue it further but
merely to raise that as a question. Another question arises,
passport and leaving Australia are important in this case, and namely why is it that the orders sought in relation to the
whether they should have been made or not.
Counsel for the respondent has indicated that he has instructions to give an undertaking to the Court that his client will file in the Registry in Hobart by the afternoon of Monday 30 March, an affidavit of discovery of all documents of a kind coming within the claims being made, and in particular of the kind referred to in the order of 17 March, and that he will file in the court at Hobart by the same time all those documents which he currently has in his possession. The respondent Ewart desires to have his passport. He undertakes, also, to pursue the defence of the claim against him with all diligence even though he is or will be in the United States of America.
At the close of the hearing yesterday, at the request of the Court, Mr Ewart gave his passport to the Court. It is currently in the custody of the Court but the undertaking is still standing and the Court in due course will have regard to it. The solicitor for the applicant is not satisfied with such a course. He wants to maintain the status quo of preventing Mr Ewart leaving Australia for a number of reasons which go to the extent of not only interrogating him but also getting him possibly to sit down and write out his version of the facts that occurred when he was the controlling mind of
the applicant. Possibly he should be examined on oath as a form of pre-trial procedure quite common in some states of the
United States of America, pre-trial oral examination, I think it is called. But at present, there is no statement of claim, although I am informed from the bar table that one is available and will be served today. All this, in reality, is being used as an aid to the obtaining of information to enable the applicant to place itself in a position to pursue its action in the United States of America, and to pursue its action against Mr Ewart in these proceedings.
In my opinion, having regard to the need to do justice between the parties according to law, having regard to the undertaking which has been offered to the Court, and the consequences of a non-compliance with that undertaking, this is a case where the Court should accept that undertaking, and should return the passport to Mr Ewart.
In this regard the Court is concerned with the effect of depriving a person of his liberty to travel as he desires. People still have rights of that kind in Australia. In extreme cases, for instance under a proper case under s1323 of the Law, orders can be made to deprive a person of his right to depart from Australia. One can understand that if an investigation is being carried out by the Commission, and a person who is required to give evidence before that Commission is allowed to depart from Australia and that person may seek to evade his obligations, the Court would make such an order to enable that investigation to continue. Insofar as ordinary
actions to be commenced, then continued between people in legal proceedings are concerned, it is not at all unusual for
Australia and overseas. Where an appearance has been entered in these proceedings by Mr Ewart, I see no reason why he should be deprived of his liberty, and I put it that high, by being told that he must give his passport to the Court. The normal processes of the Court remain in existence and can be enforced in the appropriate way.

I refer to the orders made on 17 March relating to the

2 1

interrogatories. There is no statement of claim at the moment, although there could well be one later today. The interrogatories were, in fact, served on Mr Ewart yesterday. They are extensive. No issues are defined. I propose to vary the orders made leaving it to the directions hearing on 6 April for the Court to decide what should be done in relation to those interrogatories.

In the result, and having regard to the evidence before the Court, and the findings I have made in the limited sense I have indicated, and I accept for this purpose that Mr Ewart is in a position to give information to Midland Mining, is in a position to hand over documents and that Midland Mining requires this information and these documents both for this action and for the action in the United States of America, which apparently, are due to come on for hearing on 7 April and having regard to the fact that in my opinion the question of the passport is, in the circumstances, an unnecessary and undesirable imposition of a penalty on Mr Ewart, I propose to accept the undertaking and to make orders in conformity with the reasons I have outlined.

The orders to be made are:

Upon the Respondent Norman Marshal1 Ewart, by his counsel, undertaking to the Court that he will file an affidavit of documents in the Federal Court at its Tasmania District Registry by 4 .OO pm on 30 March 1992, being the documents of the kind referred to in order 3 of the order of the Court made on 17 March 1992, and to lodge all those documents currently in his possession with the Court at the District Registry at Hobart by 4.00 pm on 30 March 1992, the Court makes the following orders.

1.    Orders 1, 2 and 3 of the orders made 17 March 1992 be vacated.

2.   Order 5 of the said orders be vacated and in lieu thereof direct that the question of interrogatories be adjourned to the directions hearing on 6 April 1992.

3.   That the orders sought, being orders 3 and 4 in the motion by the respondent Ewart, notice of which was dated 25 March 1992, be adjourned.

4.   I order that the passport of Mr Ewart presently in the custody of the Court be returned to Mr Ewart's counsel.

5.    That the directions hearing be adjourned to 6 April 1992 at a time to be notified to the parties.

6.    That costs be reserved.

2 3

I certify that this and the preceding twenty two (22) pages are a true copy of the Ex Tempore Reasons for Judgment of the Honourable Mr Justice R.M. Northrop.

Associate:

Date:  / C ,+fi?/y+-