Rod Investments (Vic) Pty Ltd v Clark (No 3)

[2007] VSC 306

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION  No. 2011 of 2005

ROD INVESTMENTS (VIC) PTY LTD	Plaintiff
v
ADAM CLARK AND ORS	Defendants

---

JUDGE:	HANSEN J
WHERE HELD:	Melbourne
DATE OF HEARING:	23 August 2007
DATE OF JUDGMENT:	23 August 2007
CASE MAY BE CITED AS:	Rod Investments (Vic) Pty Ltd v Clark (No 3)
MEDIUM NEUTRAL CITATION:	[2007] VSC 306

---

PRACTICE AND PROCEDURE – Group proceeding – Plaintiff’s summons seeking leave to amend group definition – To exclude from group defendants and defined class of persons with connection to defendants – Unnecessary to exclude defendants as they are not, and cannot be, group members – Discretion to exclude defined class of persons - Supreme Court Act1986, Pt 4A, s. 33C, s. 33K, s. 33KA.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Dr K P Hanscombe SC with Mr L W L Armstrong	Maurice Blackburn Cashman Pty Ltd
For the second Defendant	Mr L Whiffen, Solicitor	Hunts’ Lawyers
For the third and seventh Defendants	Mr B F Quinn	Minter Ellison
The fourth Defendant appeared in person
The first, fifth, sixth, eighth and ninth Defendants did not appear

HIS HONOUR:

1. This is an application by summons filed on 1 August by the plaintiff to redefine the group in the manner stated in paragraph 1 of the said summons and for further consequential orders, in paragraphs 2 to 4 of the said summons.  The summons was returnable before me on 3 August when I heard some argument and adjourned the further hearing of the summons until today.  That was because it had come on on short notice and I was provided with materials in relation to it during the course of the argument.  On 3 August I also dealt with other matters and made orders in relation to them, principally relating to the further conduct of the proceeding.

1. Not all defendants have opposed the application.  Opposition has come this morning from the second defendant and the third and seventh defendants respectively.  Putting aside the ninth defendant which is in liquidation, none of the other defendants has taken cause against the plaintiff's application.  The fourth defendant, Mr Velik, has appeared in person but made no submission.  I will explain his position in a moment.

1. The redefinition that is proposed is one that would exclude from the group those who are defendants to the proceeding on the one hand and, on the other hand, a collection of categories being persons with a familial relationship to the defendants as parent, sibling, spouse or child, bodies corporate of which a defendant was an officer or a majority shareholder at any time during the defined period, or beneficiaries of any trust, the trustee of which at any time during that period was a defendant or a company of which a defendant was an officer or majority shareholder.

1. The position as far as the first category is concerned, being those who are defendants to the proceeding, may be dealt with immediately. It is submitted by the plaintiff that a person who is a defendant cannot be regarded as a member of the group. Only the second defendant argued to the contrary. The view contended for by the second defendant seems rather peculiar to me. In the first place he is a defendant. He is sued by the plaintiff on behalf of itself and the group members, of which group he claims membership. In the second place he can seek relief from the other defendants or any of them by filing a notice under r 11.15. In my view the plaintiff’s submission is correct. It follows conceptually as a matter of commonsense that one cannot be both a plaintiff and a defendant and, in addition, I consider, from the terms of section 33C. I do not overlook the fact that the group members are not, strictly speaking, parties to the proceeding but nevertheless the plaintiff sues on their behalf and, for present purposes, their position is analogous to that of a plaintiff. In these circumstances the redefinition sought, insofar as it concerns the defendants is probably unnecessary. However, being requested to do so, I will for the sake of clarity make that order. This deals with the position of the fourth defendant who is not affected by the balance of the proposed redefinition.

1. I turn then to the other categories which the plaintiff seeks by redefinition to exclude from the group.  I indicated a tentative view about this at the start of the hearing this morning.  I had been able to arrive at a view because I had the benefit of further affidavit material and written submissions in the period of the adjournment.  I also considered that the expression of that tentative view may help to both sharpen and shorten the hearing this morning.

1. As is usually the case, in this proceeding I have had the benefit of helpful and constructive submissions and feel able now to express my conclusion on this aspect, although doubtless, if I took time to consider my reasons they might be expressed more fully and with greater felicity.

1. As I indicated in the course of argument, I had some difficulty with the familial relationship aspect.  Of course, the people caught in the category may be quite innocent, so to speak, in relation to the acquisition of the subject securities.  As to the other categories, it was difficult to know – indeed this applies to all the categories - exactly what the reach of the redefinition would be in particular circumstances.  I am not informed of the various circumstances relating to each person, company or beneficiary of a trust that would be excluded.  Insofar as beneficiaries of a trust may be concerned, it seemed that at least in the case of an ordinary discretionary trust it was difficult to comprehend how such a person or persons would have a cause of action against one of the defendants.  But, one never knows what the terms of the trust may be; none were placed before me.

1. In seeking to emphasise these considerations, Mr Quinn submitted that the question of principle with which I was concerned was whether the mere relationship between a person and a defendant or between an entity with which a defendant stands in a defined relationship and a defendant, should operate to exclude such person or entity from group membership merely because the defendant may receive a benefit, directly or indirectly, out of the fruits of the litigation.  As I have said, I am short on evidence to enable me to know, and I cannot speculate, as to the various circumstances which may relevantly affect people in the proposed categories.

1. Dr Hanscombe submitted that Mr Quinn's identification of the point was not correct, that the real issue concerned more the right or ability of the plaintiff to proceed with a group defined as it considered appropriate for the litigation.  That is to say, should the plaintiff be able to bring the proceeding for itself and for the benefit of those it wishes to bring it for.

1. It is axiomatic, I think, in the determination of these submissions, and indeed of all that was submitted, to consider what is the just and convenient way of the proceeding advancing through to judgment. The considerations which the plaintiff on the one hand and the court on the other hand may consider on this present application are broad indeed. That is my view and it is confirmed by the width of the power contained for this purpose, whether it be regarded as being contained in section 33K or section 33KA of the Act. As I said in the course of argument, it is unnecessary to elaborate as to whether one of those sections or the other is the appropriate source of power, for it is clear that the power exists to make the order that is now sought or a variation thereof.

1. At the forefront of the argument for the plaintiff has been a concern that the mediation which I ordered on 3 August might not be effective if the group definition stands as it presently is.  The plaintiff pointed to the extensive shareholding of the second defendant (and entities with which he had a relationship) which it sought to exclude by the new definition of the group.  The plaintiff’s apprehension was that if those interests were not excluded, the shareholding and those interests were of such a size and extent as to constitute an obstacle to settlement in the sense that other defendants would be disinclined to contribute to a settlement because those “interests” on the second defendant’s side, and thereby the second defendant himself, may indirectly benefit.  It was a further concern that the size of the interest of the second defendant, and his associated “interests” covered by the proposed redefinition would significantly eat into any pool of settlement funds available for the group.  Mr Whiffen said that there is an element of speculation about this.  He referred to the lack of evidence as to the position that might be taken by those sought to be excluded by the proposed redefinition.

1. In my view there is an element of speculation about a number of the matters that have been put to me this morning.  It is interesting that, for instance, the Clark parties, the first, fifth and sixth defendants, take no part in the current objection to the redefinition.  I cannot, of course, know why parties to the litigation take the position that they do.  Out of court considerations are not a matter that the court can know about or should speculate about.  Nevertheless, the consideration that Dr Hanscombe has mentioned in regard to settlement is one that may readily be apprehended because the shareholding interest of the Tatoulis side, if I can refer to it in that way, is very substantial in the overall context.

1. It is important to also bear in mind that if the group is redefined, a person or company or trust beneficiary that is thereby excluded from the group is not left without a right to sue.  The effect of excluding them from the group is that the limitation period will resume running and any such person can, if they wish, commence a proceeding, indeed a group of them can commence their own group proceeding, and any such proceeding, if commenced, would doubtless be sought to be brought alongside and directed to trial with the present proceeding.  The difference would be, or at least one difference would be, that the subject person or persons would have to pay their costs as distinct from travelling along on the back of the present group proceeding.

1. In my view, the proposed redefinition of the group would serve to bring clarity as to the composition of the group.  Clarity would further result from any separate proceeding being commenced.

1. As I said at the outset this morning, there is a balancing consideration involved in this exercise.  The overall consideration is, I think, the ascertainment of that which is just and expedient in the circumstances of this case, and that is to regard the question from the point of view of the fairness and justice to all parties, both named and within the present group definition.  It is a difficult exercise and although this morning I indicated a tentative view that I might stand this part of the application over, even until after judgment, for the reason that perhaps I would then be in a position of being informed about the particular circumstances of those individuals or entities that would be excluded by the redefinition, and be able to decide in light of those matters whether to exclude a person or entity from the group, I am satisfied having heard the argument that the more convenient course is to reach a view on the matter now.

1. The proceeding has been on foot since 2005.  It is a proceeding in which people are seeking to recoup alleged loss resulting from the acquisition of securities.  These proceedings are expensive.  Much expense has already been incurred and there is much to be said for bringing to the group the greatest degree of clarity and precision that can properly be achieved.

1. Bearing those considerations in mind, bearing in mind what has been said both today and on 3 August, considering also that the redefinition of the group has a prejudicial effect on those that would be excluded only to the extent that they would -if they wished – have to commence their own proceeding with the attendant expense, and bearing in mind that the case is the plaintiff's after all, I have arrived  at the conclusion in the exercise of my discretion that the group should be redefined as proposed by the plaintiff.  Accordingly, I will make the order that is sought in paragraph 1 of the summons and the further orders in paragraphs 2, 3 and 4 thereof.