Sent, Edward Christiaan & Anor v Jet Corporation of Australia Petres Pty Ltd & Ors v Jet Corporation of Australia Collier & Anor v Jet Corporation of Australia
[1984] FCA 185
•06 JULY 1984
SENT v. JET CORP. OF AUST. P/L (1984) 2 FCR 201
VG Nos. 226, 227 and 230 of 1983
Statement of Claim
4 IPR 145 / (1985) 3 ACLC 397 / 54 ALR 237
8 ACLR 979
COURT
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Smithers(1), Sweeney(2) and McGregor(3) JJ.
CATCHWORDS
Statement of Claim - whether a cause of action disclosed - elements constituting involvement within the meaning of s.75B of the Trade Practices Act 1974 - whether those elements were disclosed by pleadings against certain appellants - meaning of "causing" a representation to be made or an agreement to be entered into or completed - whether the respondent company could be misled when the mind of the company was the mind of directors alleged to be involved in the misleading and deceptive conduct. Security for costs - whether the Federal Court had jurisdiction to exercise the discretion contained in s.533 Companies Act 1981 (Vic.) - Factors taken into account - weight to be attributed to certain factors - the issue of the respondent company suing for benefit of another within the context of both o.28 r.3(1)(b) and s.533 of the Companies Act 1981 (Vic.). Appeal - principles to be applied in an appeal from an exercise of a discretion by the primary judge on a matter of practice and procedure.
Trade Practices Act 1974 - ss.52, 75B.
Companies Act 1981 (Vic.) - s.533
Federal Court Rules - o.28 r.3(1)(b)
Pleading - Striking out - Cause of action not disclosed - Embarrassing - Whether allegation of law or fact - "Causing" - "Involved" - Position of directors of company - Federal Court Rules, O. 28, r. 3(1)(b).
Practice and Procedure - Security for costs - Insolvent company suing for benefit of and at behest of secured creditor - Whether s. 533 Companies Code applicable in Federal Court - Companies Code 1981 (Vic.), s. 533.
Federal Court - Jurisdiction - Whether s. 533 Companies Code applicable in Federal Court - Companies Code 1981 (Vic.), s. 533.
Trade Practices - Individual "involved" in or "party" to contravention - Positive act required - Trade Practices Act 1974 (Cth), s. 75B.
HEADNOTE
Held: (1) For an individual to be involved in a contravention of the Trade Practices Act 1974 (Cth) within the meaning of s. 75B, it is necessary not only that the person concerned should know that a party proposed to engage in a contravention but he should in some positive way be associated therewith. In the absence of any duty by a person, silence and inactivity notwithstanding knowledge, is not sufficient.
(2) The powers conferred upon the Supreme Court by the Companies Code 1981 (Vic.), s. 533 relating to security for costs may be exercised by the Federal Court of Australia.
(3) The fact that litigation is prosecuted by an insolvent company at the instance and under the control of a secured creditor substantially for the benefit of that creditor is a weighty consideration in favour of granting an order of security for costs pursuant to s. 533 of the Companies Code 1981.
(4) Section 533 of the Companies Code 1981 creates a discretion for the protection of the defendant party from the unfair and possibly burdensome consequences of an unsuccessful claim against it by an impecunious company and the statutory purpose of the section is itself a consideration.
Matters relevant to an application to strike out statement of claim as not disclosing a cause of action considered.
HEARING
APPEAL. Melbourne, 1984, March 13, 14; July 6. #DATE 6:7:1984
Appeal from a judgment and orders of Northrop J.
A. C. Archibald Q.C. and M. Phipps, for the appellants.
K. Hargrave, for the appellants.
A. Chernov Q.C. and T. J. Ginnane, for the appellants.
D. Graham Q.C. and P. Hayes, for the respondent.
Cur. adv. vult.
Solicitor for the appellants: Ridgeway Clements& Co., Cornwall Stodart & Co., F.R. Monotti & Co.
Solicitor for the respondents: Madgwicks. P.F.A.
ORDER
The appeals of the appellant parties are allowed with costs of and incidental to their relevant motions.
Leave is granted to Jet Corporation to amend the Statement of Claim if so advised.
Leave is reserved to the appellant parties to apply to this Court in respect of the amended Statement of Claim if so advised on reasonable notice.
Security for the costs of each of the appellant parties should be provided by Jet Corporation.
The determination of the amount and nature of such security is referred to the Judge from whose decision this appeal is brought.
Appeal allowed with respondent to pay costs.
JUDGE1
Before this court are appeals from the following appellant parties:
- John Barry Collier (originally the 6th respondent and hereinafter referred to as Collier);
- Lindsay Quentin Hogg (originally the 7th respondent and hereinafter referred to as Hogg)
- Petres Pty. Limited (in its own right and in its capacity as trustee of the Schutt Unit Trust) originally the 1st respondent and hereinafter referred to as Petres);
- Dipson Pty. Limited (in its own right and in its capacity as Trustee of the Dipson Settlement) originally the 2nd respondent and hereinafter referred to as Dipson);
- Westwind Jet Corporation Pty. Limited (originally the 3rd respondent and hereinafter referred to as Westwind);
- Trevor Burton Huttley (originally the 4th respondent and hereinafter referred to as Huttley);
- Jon Dean Wilson (originally the 5th respondent and hereinafter referred to as Wilson);
- Scapela Ira Nominees Pty. Ltd. (originally the 10th respondent and hereinafter referred to as Scapela);
- Edward Christiaan Sent (originally the 8th respondent and hereinafter referred to as Sent);
- Brian Forshaw (originally the 9th respondent and hereinafter referred to as Forshaw);
- Rovoil Pty. Ltd. (originally the 11th respondent and hereinafter referred to as Rovoil);
The appeals are from orders made on three notices of motion. The first of these was a notice given by Collier and Hogg. The relief sought in that motion included orders:-
"1. That the proceeding insofar as it lies against the Third and Fourthnamed Fourth Respondents (in other words the 6th and 7th respondents) be stayed or dismissed.
2. Alternatively that the Applicants provide security for the costs of the Third and Fourthnamed Fourth Respondents in such form or amount as this Honourable Court may direct and that until such security is provided the proceeding insofar as it lies against the Third or Fourthnamed Fourth Respondents be stayed."
The second motion was that of Petres, Dipson, Westwind, Huttley, Wilson, Scapela, and Rovoil. Relief sought in that motion included orders:-
"1. THAT the Applicants' claims against them in these proceedings be stayed or dismissed generally pursuant to Order 20 Rule 2(1) of the Federal Court Rules.
2. FURTHER OR ALTERNATIVELY, THAT the Applicants and each of them provide security for their costs of these proceedings and in default of so doing that the claims against them in these proceedings be stayed or dismissed.
3. FURTHER OR ALTERNATIVELY, THAT the Applicants file and serve Further and Better Particulars of the Statement of Claim, in accordance with the Request annexed hereto or as otherwise ordered by this Honourable Court, before the filing of Defences by them."
The third notice was that of Sent and Forshaw. The relief sought therein included orders:-
"1. That the Application made by the Applicant in paragraph 1 of its Application herein be dismissed as being an abuse of the process of the Court.
2. . . .
3. That the Applicants' Statement of Claim herein be struck out
(a) as being an abuse of the process of the Court
(b) as having a tendency to cause prejudice, embarrassment or delay in the proceedings herein.
4. That the Application of the second and third named Applicants be, so far as it relates to them the said Edward Christiaan Sent and the said Brian Forshaw, dismissed on the basis that
(a) there is no reasonable cause of action disclosed against them
(b) the said Application is frivolous or vexatious as against them
(c) the said Application is an abuse of the process of the Court as against them.
Alternatively,
5. That the Applicants and each of them be required to deliver further and better particulars of their Statement of Claim against the said Edward Christiaan Sent and the said Brian Forshaw before they deliver their defences herein.
The issues between the parties arise out of commercial transactions entered into in 1981 and 1982 by various of the parties to this action. According to the somewhat complex allegations in the Statement of Claim:
(a) Sent and Forshaw in May 1981 sold to Wilson their interests, called the vendor's interests, in Petres, Westwind and Dipson and in the applicants Electrum Acceptance Pty. Ltd., Electrum Finance Pty. Ltd., and in a certain unit trust known as the Schutt Unit Trust, for the sum of $4,800,000. This sum was payable by a deposit of $400,000 on 20 May 1981, an instalment of $600,000 on 10 September 1981 and the balance, namely $3,800,000 on 20 July 1983. (The first Wilson agreement)
(b) By an agreement dated 10 September 1981 made pursuant to the first Wilson agreement between Petres and Westwind of the first part, certain persons identified in a schedule as vendors of the second part, Sent and Forshaw of the third part, Dipson of the fourth part and Wilson of the fifth part, Sent and Forshaw agreed to transfer to Dipson all the interests in the above mentioned "vendors interests" of themselves and of the vendors identified in the schedule in the above mentioned vendors' interests for $4,800,000 payable as to $3,000,000 by Petres and Westwind, and as to $1,800,000 by Dipson by an initial deposit of $400,000 on 20 May 1981, an instalment of $600,000 on 20 September 1981 and the balance by 20 July 1983. (The second Wilson agreement)
(c) By a sale of business agreement called the Petres sales agreement dated 20 October 1981 and a supplemental sales agreement in writing dated 22 October 1981 made between Petres as vendor and Jet Corporation of Australia Pty. Ltd. (originally the 1st applicant and hereinafter referred to as Jet Corporation) as purchaser, Petres sold and Jet Corporation purchased certain assets and assumed certain liabilities of Petres for a consideration being the sum of $10,899,360 payable by Jet Corporation to Petres.
(d) By an agreement in writing called the Westwind sales agreement dated 22 October 1981 between Westwind as vendor and Jet Corporation as purchaser Westwind sold and Jet Corporation purchased certain assets and Jet Corporation assumed certain liabilities of Westwind for a consideration being the sum of $1,100,640 payable by Jet Corporation to Westwind.
(e) By an agreement in writing called the Dipson sales agreement dated 22 October 1981 between Dipson as vendor and Jet Corporation as purchaser Dipson sold and Jet Corporation purchased the issued shares in Electrum Acceptance Pty. Ltd. and Electrum Finance Pty. Ltd. for the sum of $4.00.
(f) Jet Corporation made the payments pursuant to the foregoing sales agreements.
(g) Prior to Jet Corporation entering into the sales agreements certain representations warranties and statements (called the sales agreement representations) were made to Jet Corporation. Those representations related:-
(i) to the value of the assets and liabilities of Petres pursuant to Petres sales agreement;
(ii) the value of the goodwill of the business of Petres pursuant to the Petres sales agreement;
(iii) the value of certain leasehold improvements of the business of Petres:
(iv) the value of the assets and liabilities of Westwind pursuant to the Westwind sales agreement; and
(v) the validity and subsistence of certain aircraft leases known as the Stohl lease and the Lazar lease.
(h) Proir to the payment of sums of $9,899.360 to Petres on 21 December 1981, $1,100,460 to Westwind on 23 December 1981 and $4.00 to Dipson on 21 December 1981 representations, warranties and statements (calles the pre-settlement representations) were made to Jet Corporation. Those representations were in the same terms as those of the sales agreement representations:
(i) The sales agreement representations were made by Petres, Westwind and Dipson by and pursuant to the terms of the respective sales agreements between them and Jet Corporation. They were also made to Jet Corporation in a report called the Lidgett report relating to the value of the assets and in particular of the goodwill of the business of Petres which were the subject of the Petres sales agreement;
(j) the pre-settlement representations were made by Petres, Westwind and Dipson to Jet Corporation by and pursuant to their respective agreements and by the carrying out and completion of their respective agreements in accordance with their terms and without aleration. The pre-settlement representations were also contained in the Lidgett report and in certificates called the Touche Ross certificates:
(k) Each of the sales agreement representations and the pre-settlement representations was untrue and by reason of the making of the sales agreement representations and the pre-settlement representations Petres, Westwind and Dipson engaged in conduct which was misleading or deceptive and/or likely to mislead or deceive within the meaning of s.52 of the Trade Practices Act 1974 (the Act);
(l) As against Huttley, Wilson and Collier it is alleged in the Satement of Claim that they made both the sales agreement representations and the pre-settlement representations to Jet Corporation, in relation to the former, by causing the Petres, Westwind and Dipson sales agreements to be prepared and entered into by Jet Corporation, and in relation to the latter by causing the Petres, Westwind and Dipson sales agreements to be carried out and completed by Jet Corporation and Petres, Wilson and Dipson in accordance with the terms of those agreements without alteration: and by causing the Lidgett report and the Touche Ross certificates to be prepared;
(m) Further it is alleged that Huttley and Wilson as directors of Petres and Westwind, and Wilson as a director of Dipson:-
(i) aided, abetted, counselled and procured Petres, Westwind and Dipson to engage in the conduct complained of by Jet Corporation;
(ii) were directly or indirectly knowingly concerned in and/or party to that conduct;
(n) Further, as against Collier it is alleged that as a Director of Jet Corporation he:-
"(i) was aware that the sales agreement representations were untrue and notwithstanding such knowledge caused or permitted Jet Corporation to enter into the Petres sales agreement, the Westwind sales agreement and the Dipson sales agreement;
(ii) was aware that the sales agreement representations and the pre-settlement representations were untrue and notwithstanding such knowledge caused or permitted Jet Corporation to complete the said agreements; and
(iii) thereby -
(i) aided and abetted, counselled and procured Petres, Westwind and Dipson to engage in the conduct complained of by Jet Corporation;
(ii) was directly or indirectly knowlingly concerned in and/or party to that conduct;
(o) As against Hogg it is alleged:-
(i) that he made the pre-settlement representations to Jet Corporation by causing the Petres, Westwind and Dipson sales agreements to be carried out and completed by Jet Corporation in accordance with the terms of the agreements without alteration and by causing a Touche Ross certificate dated 21 December 1981 to be prepared; and
(ii) that at all material times as a Director of Jet Corporation he was aware that the pre-settlement representations were untrue and notwithstanding such knowledge caused or permitted Jet Corporation to complete the Petres, Westwind and Dipson sales agreements and thereby:-
(i) he aided, abetted, counselled or procured Petres, Westwind and Dipson to engage in the conduct complained of by Jet Corporation;
(ii) was directly or indirectly knowingly concerned in and/or party to that conduct.
(p) It is alleged that at the time when Petres, Westwind and Dipson proposed to enter into the sales agreements referred to above Sent and Forshaw were aware:-
(i) that Petres, Westwind and Dipson proposed to enter into the sales agreements;
(ii) that the sales agreement representations would be made and that they were untrue; and
(iii) that Wilson, Petres, Westwind and Dipson were unable to pay the purchase price or their respective shares of the purchase price under the first or second Wilson agreements.
(q) It is also alleged that, when Petres Westwind and Dipson made the sales agreements Sent and Forshaw were aware:
(i) that Petres, Westwind and Dipson intended to complete the said agreements:
(ii) that the sales agreements, representations and the pre-settlement representations had been made and that they were untrue; and
(iii) that Petres, Westwind, Dipson and Wilson were unable to pay the purchase price or their shares thereof under the first and second Wilson agreements.
and by (p) and (q) they:
(1) aided, abetted, counselled or procured Petres, Westwind and Dipson to engage in the conduct complained of by Jet Corporation;
(2) were directly or indirectly knowingly concerned in and/or parties to that conduct.
(r) on 21 December 1981 at the offices of Mallesons, solicitors for Citicorp at the time of the settlement of the Petres sales agreement and the Dipson sales agreement Sent and Forshaw accepted payments pursuant to the first and second Wilson agreements;
(s) as against Scapela and Rovoil it is alleged that they were knowingly concerned in or party to the misleading and deceptive conduct alleged against Petres, Westwind and Dipson by reason:-
(i) that Scapela and Rovoil were parties to the Scapela agreement and the Rovoil agreement respectively;
(ii) that Scapela and Rovoil were entitled to and derived valuable benefits pursuant to those agreements and the continued operation thereof;
(iii) that the continued operation of the Scapela and Rovoil agreements were secured by the Petres sales agreement;
(iv) that it was a term of the Petres sales agreement that Petres would transfer and Jet Corporation would assume the obligations of Petres pursuant to two agreements between Petres on the one part and Scapela and Rovoil respectively on the other (the "Scapela agreement" and the "Rovoil Agreement")
(v) that Scapela is and was at all material times a company incorporated in the State of Victoria in accordance with the Companies Act in force, and was a trading corporation and is the affective control of Wilson;
(vi) that Rovoil is and was at all material times a company incorporated in the State of Victoria in accordance with the Companies Act in force, and was a trading corporation and in the effective control of Huttley.
Included in the Statement of Claim are claims for relief on the ground that Huttley, Wilson, Collier and Hogg committed breaches of their duties under the general law to Jet Corporation as directors thereof in causing or permitting Jet Corporation to enter and then complete the Petres, Westwind and Dipson sales agreements. The jurisdiction of this Court to adjudicate on such claims arises, if at all, under s.22 of the Federal Court of Australia Act 1976 on the basis that they are properly brought forward in a matter before the Court. No submissions were made on the motions before this Court as to the manner of pleading any such claims.
It is convenient to deal first with Sent and Forshaw. On their behalf Mr. Archibald, relying on o.11 r.16 and o.20 r.2 of the Federal Court Rules (the rules), submitted that the Court should dismiss the action or grant a stay thereof on the ground that the claims made against Sent and Forshaw are clearly unsustainable. He pointed out that so far as relief under the Act is sought in the application the only claims against Sent and Forshaw are for damages on the ground that they were "involved" within the meaning of s.75B of the Act in conduct that was engaged in by Petres, Westwind and Dipson in contravention of s.52 of the Act. He contended that the matters pleaded provided no basis upon which such "involvement" could be supported. He submitted that what was pleaded did not disclose any conduct on the part of Sent or Forshaw which, within the meaning of s.75B of the Act, constituted aiding, abetting, counselling or procuring any of the contraventions of the Act by Petres, Westwind and Dipson, or that they were in some way directly or indirectly concerned in or party to any of those contraventions. And it is clear that no allegation of any positive act of collaboration or association with Petres, Westwind and Dipson appear.
However, Mr. Graham for Jet Corporation contended that, from the facts alleged, the inference might properly be drawn that Sent and Forshaw were persons "involved" in the contraventions. He said that the relevant contraventions were constituted by misrepresentations by Petres, Westwind and Dipson designed to induce Jet Corporation to purchase the relevant assets for the consideration stated in the relevant sales agreements. He pointed out that it was in the interests of Sent and Forshaw that Petres, Westwind and Dipson should make a successful sale, and that otherwise they would be unable to meet their liabilities to Sent and Forshaw. He contended that if, as alleged in the Statement of Claim, Sent and Forshaw knew that Petres, Westwind and Dipson, for the purpose of making such a sale, proposed to misrepresent to Jet Corporation the value of the assets and stood silently by while they did so, that conduct would constitute involvement in the contravention. But it is clear that to be involved in a contravention consisting of misleading and deceptive conduct it is necessary not only that the person concerned should know that a party proposed to engage in a contravention but he should in some positive way, be associated therewith. On the face of the pleadings there is nothing to suggest that the sales by Sent and Forshaw to Petres, Westwind, Dipson and Wilson were not entered into perfectly bona fide as a matter of business, save that they knew that Petres, Westwind, Dipson and Wilson could not pay the sums due by them unless they made a sale at a satisfactory price. No doubt questions arise when it is seen that assets are sold to a purchaser who can only pay for them if he sells those assets at a satisfactory price. But where it does not appear that the vendor has any control over, or is in any way a participant in, the negotiations for the resale of the assets or promoting the making of misleading statements by the purchaser to a subsequent potential purchaser, the mere fact that the vendor was aware of impending misconduct of the persons reselling the asset does not raise a case of involvement in that misconduct.
According to the decision of the Full Court of the Federal Court in Yorke v. Lucas (1984) 49 ALR 672 a person is not "involved" in a contravention within the meaning of s.75B of the Act unless he assents to or concurs in the conduct which constitutes the contravention. What was in issue in that case was not whether a positive act had been committed by the alleged aider and abettor but whether he had knowledge of the falsity of what he had said to the party who was misled. If such knowledge had been shown his making of the statements would have constituted a sufficient positive act. Here the situation is different. The knowledge is alleged but not the positive act. If it were alleged that Sent and Forshaw performed some act associating themselves with the misleading conduct in which they knew Petres, Westwind and Dipson intended to engage there would be both the knowledge and the participation in the misleading conduct. Involvement would be clear. As was said in Yorke v. Lucas (supra) at p.681 adopting the decision of Pennycuick V.C. in Re Maidstone Buildings Provisions Ltd. (1971) 1 WLR 1085 the expression "party to" in 332(1) of the Companies Act 1945 "must on its natural meaning indicate no more than "participated in", "takes part in" or "concurs in". And that, it seems to me, involves some positive step of some nature. I do not think it can be said that someone is a party to carrying on a business if he takes no positive steps at all". But there is in Jet Corporation's pleading no hint of any positive step which might constitute participation on the part of Sent and Forshaw in the alleged misleading and deceptive conduct of Petres, Westwind and Dipson in connection with their sales to Jet Corporation. Even if it were correct to say that on the facts pleaded satisfaction might have been felt by Sent and Forshaw in the possibility that Petres, Westwind and Dipson might make a sale at a satisfactory price and so be enabled to pay the purchase money due by them to Sent and Forshaw that would not constitute a relevant positive act on the part of the latter.
In the absence of some duty owed by Sent and Forshaw to Jet Corporation, silence and inactivity on the part of Sent and Forshaw, notwithstanding all their knowledge, was non-significant. Similarly, for the purpose in hand, the acceptance by Sent and Forshaw from Petres, Westwind and Dipson of the purchase money due to them by any of those companies with knowledge that the money paid was part of the proceeds of the sale of the assets to Jet Corporation in the circumstances described would not constitute a positive act of participation by Sent and Forshaw in the alleged misleading and deceptive conduct of Petres, Westwind and Dipson which had occurred in the negotiations for the various sales to Jet Corporation. These sales were in the control of Petres, Westwind and Dipson and the steps they took to achieve a sale satisfactory to them were determined by them. If Sent and Forshaw become aware that Petres, Westwind and Dipson intended to induce Jet Corporation to pay a high price by misrepresenting the value of the assets it was, strictly speaking and apart from matters of morality, none of their business. For all that appears, they were in no position to intervene. Intervention might have involved them in danger of incurring some liability. Of course, the sales on which Petres, Westwind and Dipson negotiated were sales at a price much higher than was necessary to discharge their liability to Sent and Forshaw and to that extent their interests were different from those of Sent and Forshaw. There is nothing alleged which indicates that Sent and Forshaw were not mere onlookers of the alleged misleading and deceptive conduct of Petres, Westwind and Dipson.
As pointed out in Yorke v. Lucas (supra) at p.680 a statute may be cast in such terms as to imply a duty to foresee and prevent the act or thing that is the offence and that in such case any party, who could and should prevent the Act or thing, but omits to do so, is a party to and participates in the offence. In Yorke v. Lucas (supra) it was held that the terms of s.75B were not to be interpreted as imposing on the managers of a corporation a duty to take positive steps to prevent the corporation from engaging in misleading and deceptive conduct where they have no knowledge of the essential facts necessary to constitute the contravention. It is not to be thought that it imposes such a duty on a party who has no legal relationship of any kind with the person who proposes to engage in misleading and deceptive conduct in relation to a third person. There is no suggestion that there is disclosed in the Statement of Claim a duty of some nature on Sent and Forshaw to have warned Jet Corporation of the alleged proposal of Petres, Westwind and Dipson to engage in the misleading and deceptive conduct alleged against them.
It appears therefore that in relation to Sent and Forshaw the terms of the Statement of Claim do not comprehend every element reasonably necessary to constitute a cause of action under s.75B of the Act. It does not necessarily follow, however, that the application should be dismissed. The observations of Barwick CJ in General Steel Industries Inc. v. Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129 are in point:-
"There is no need for me to discuss in any detail the various decisions, some of which were given in cases in which the inherent jurisdiction of a court was invoked and others in cases in which counterpart rules to Order 26, r.18, were the suggested source of authority to deal summarily with the claim in question. It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action - if that be the ground on which the court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated.
. . .
Dixon J. (as he then was) sums up a number of authorites in Dey v. Victorian Railways Commissioners (1949) 78 CLR 62 where he says: "A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court with or without an injury. The fact that a transaction is intricate may not disentitle the court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action as frivolous and vexatious and an abuse of process.""
Mr. Graham for Jet Corporation seeks leave to amend the Statement of Claim. The defect in this Statement of Claim, unless cured by amendment, would be fatal to it. But at this interlocutory stage, before delivery of a defence, leave to amend on terms would seem appropriate. Such leave should be given with liberty to the appellant parties to apply to strike out the amended Statement of Claim or for other relief as they may be advised. This was the course adopted by the Full Court in L. Grollo Darwin Management Pty. Ltd. v. Victor Plaster Products Pty. Ltd. (1978) 19 ALR 621.
I turn now to the motion in which Mr. Chernov made submissions on behalf of Collier and Hogg that the Statement of Claim discloses no cause of action against his clients or alternatively that it ought to be struck out as embarrassing. His attack on the Statement of Claim took two paths. First he challenged the allegation that Collier and Hogg were involved in the making of either the sales agreement representations or the pre-settlement representations "by causing" the sales agreements to be entered into and completed by Jet Corporation and "by causing" the certificate of Messrs Touche Ross & Co. to be prepared. He submitted that such statements did not disclose any act of causing the events referred to and were therefore embarrassing.
According to the Statement of Claim both Collier and Hogg as Directors of Jet Corporation were aware that the representations (in Collier's case both the sales agreement and the pre-settlement representations, and in Hogg's case the pre-settlement representation) referred to above were untrue and notwithstanding such knowledge caused or permitted Jet Corporation to (in Collier's case) enter into the Petres, Westwind and Dipson sales agreements when aware that the representations were untrue and(in both Collier's and Hogg's case) notwithstanding such knowledge they caused or permitted Jet Corporation to complete the agreement.
It is then alleged that "thereby" Collier and Hogg aided or abetted counselled and procured Petres, Westwind and Dipson to engage in the relevant misleading conduct by which Jet Corporation was induced to enter into and complete the Petres, Westwind and Dipson sales agreements. Mr. Chernov relied on the observations of Adam J. in Rubenstein v. Truth & Sportsman Ltd. (1960) VLR 473 relating to allegations that the defendant Marks directed and authorized other defendants to publish defamatory material. His Honour at p.476 (supra) referred to the words of Cotton L.J. in Phillips v. Phillips (1878) 4 QBD 127 at p.139; "It is absolutely essential that the pleading not be embarrassing to the defendants, should state those facts which will put the defendants on their guard and tell them what they will have to meet when the case comes on for trial." His Honour held that the mere bold assertion that the defendant Marks directed or authorized the other defendants to publish the alleged libel offended the fundamental rule that every pleading shall contain, albeit in summary form a statement of the material facts. The assertion in that case was bold in that it was isolated from any circumstance or context connecting the defendant Marks with the other defendants or the publication in question. That is not the case with this pleading, where the allegation that Collier and Hogg caused the agreements to be carried out has significance in that, as directors they were in a position to influence and perhaps cause Jet Corporation to enter into and carry out the sales agreements. The pleadings may well prompt a request for particulars but does not call for an order striking out a plea.
The second path pursued by Mr. Chernov was that it was alleged against Collier and Hogg that the conduct in which they are said to have been involved in was conduct in which they were involved in their capacity as directors of Jet Corporation and when they had control of Jet Corporation. He submitted, therefore, that the pleading discloses that Jet Corporation was not misled because two directors were aware of the falsity of the representations by which Jet Corporation is said to have been misled; theirs was the mind of Jet Corporation by which, with full awareness of all relevant circumstances, Jet Corporation decided to enter into and complete the relevant agreements.
Mr. Chernov pointed out also that there is no allegation that Collier and Hogg were in collusion or conspiracy with Petres, Westwind or Dipson under which they were to betray their duty to Jet Corporation by causing or allowing it to enter into and complete the Petres, Westwind and Dipson sales agreements.
In relation to the matters so raised Mr. Graham contended that they involved difficult questions of law. He said that it could not be said at this stage of this action that the absence of a closer nexus between Petres, Westwind and Dipson on the one hand and Collier and Hogg on the other, other than that disclosed, precluded a finding that Collier and Hogg aided, abetted, counselled, were concerned in or a party to the contravention by Petres, Westwind and Dipson of s.52 of the Act. The allegation that Collier and Hogg, as Directors of Jet Corporation caused it to enter into the Petres, Westwind and Dipson sales agreements knowing of the falsity of the representations therein constituted a positive step by Collier and Hogg sufficient to satisfy the requirements of involvement by them in the contravention. At any rate, he said, a connection between Collier and Hogg and the misleading and deceptive conduct of Petres, Westwind and Dipson was indicated with sufficient significance to induce the Court to refrain from striking out the claims against Collier and Hogg. There was certainly a positive act alleged on their part which was an integral step in the conduct of Petres Westwind and Dipson in misleading or deceiving Jet Corporation.
As to the suggestion that because of the knowledge and conduct of Collier and Hogg as Directors of Jet Corporation the pleading destroyed the allegation that that company was misled, Mr. Graham said that, once again, there can be at this stage no clear acceptance or even rejection of this suggestion. It could not be said with certainty that the conduct of a director or of more than one director of a company who, in a particular transaction committed a breach of duty by allowing or perhaps promoting the deception of the company by some other person, necessarily meant that the company was not deceived.
In my opinion, this is not one of the very clear cases to justify the summary intervention of the court, to use the language of Dixon J. in Dev v. Victorian Railways Commissioner (1949) 78 CLR at p.91. It is not "so obviously untenable that it cannot possibly succeed" (See General Steel Industries Inc. v. Commissioner for Railways (NSW) (1964) 112 CLR 125 at pp.128-9). The appropriate time for a decision on this submission will be when the evidence has been heard and the facts found.
I turn then to the motion filed on behalf of Petres, Westwind, Dipson, Wilson, Huttley, Scapela and Rovoil. At the hearing of this appeal Mr. Hargrave addressed arguments relating to the Statement of Claim only to Wilson and Huttley. On behalf of Wilson and Huttley Mr. Hargrave contended that an allegation made against them that they as Directors of, and persons in control of, Jet Corporation made the sales agreement and pre-settlement representations by causing the Petres, Westwind and Dipson sales agreements to be entered into and completed by Jet Corporation, was defective as a plea in that it was embarrassing, and but a conclusion of law, not an allegation of fact. The observations above with reference to the similar contention of Mr. Chernov on behalf of Collier and Hogg apply to this contention of Mr. Hargrave. It is manifest that particulars are called for.
Similarly Mr. Hargrave adopted what Mr. Chernov had said concerning Jet Corporation not being able to mislead itself, there being an identity of minds between the alleged representors and the representee. The comments already made relating to this aspect of the argument are also applicable to the claims made against Huttley and Wilson. But it is to be noted, in passing, that in the case of Huttley and Wilson, as no allegations are made in the Statement of Claim of awareness on their part of the untruth of the sales agreement and pre-settlement representations, it is even more difficult for Mr. Hargrave to sustain the contention. And in turn this further weakens Mr. Chernov's submissions that the minds of his clients have to be treated as the mind of the company.
Although it was not argued by Mr. Hargrave, the lack of an allegation in the pleadings of awareness by Huttley and Wilson of the untruth of the sales agreement and pre-settlement representations may constitute a defect in the case sought to be made that these appellant parties were "involved" in contraventions of the Act pursuant to s.75B thereof.
The same comment may be made about the pleadings as they relate to Scapela and Rovoil and in addition there are no allegations in the Statement of Claim of a positive act. As to this latter point, the pleadings suffer from the same flaw as the pleadings relating to Sent and Forshaw and are subject to the observations hereinbefore appearing concerning the case made against Sent and Forshaw.
Security for Costs
Each of the appellant parties contended that with respect to their applications for an order that Jet Corporation should provide security for their costs of defending the action, the appeal should be allowed. Each concedes that the orders rejecting the applications were made by the learned judge in the exercise of his discretion in an interlocutory proceeding in a matter of practice and procedure. It is established that an appellate court should exercise particular caution and be extremely reluctant to interfere with decisions of primary judges relating to matters of practice and procedure which do not determine any substantive rights of the parties. If it be shown that relevant considerations were not taken into account or irrelevant considerations were given weight and that the decision results in substantial injustice, the discretion of the Court of Appeal may be substituted for that of the learned Judge. Of course, even where it is not plainly demonstrated that relevant considerations were ignored or irrelevant considerations were given weight, if an appeal court is satisfied that the decision is plainly erroneous, it may draw the inference that some critical error of principle had occurred. See the observations of Dixon J., as he then was, and Evatt and McTiernan JJ. in House v. The King (1936) 55 CLR 449 at 505. But, as was approved in the majority judgment in Adam P. Brown Male Fashions Pty. Ltd. v. Philip Morris Inc. (1981) 148 CLR 169 at 177, a tight rein should be kept "upon interference with a decision not being one determining substantive rights and on a point of practice or procedure". See also Jordan C.J. in In re the will of F.B. Gilbert (dec) (1946) 46 SR (NSW) 318 at 323.
It was submitted by Mr. Hayes that s.533 of the Companies Act (Vic.) 1981 does not confer upon the Federal Court jurisdiction to exercise the discretion contained therein. He argued that the Court's jurisdiction was limited to o.28 r.3 of the rules. Having regard to the generality with which a provision in substance similar to s.533 is in force in other jurisdictions it would be strange that a provision so widely approved by the legislature, no doubt because of the limitation of the liability of companies, should not extend to this Court. But because of the terms of s.56 of the Federal Court of Australia Act 1976 and s.79 of the Judiciary Act 1903-1973 the view that it does confer jurisdiction has been taken and applied by single Judges of this Court in Drumdurno v. Braham (1982) 42 ALR 563 and in Tradestock v. TNT Management Pty. Ltd. (1977) 30 FLR 343; (1977) 14 ALR 52; and by the Full Court of this Court in Bell Wholesale Company Pty. Ltd. v. Gates Export Corporation G113 of 1983 (unreported). In the last mentioned case the Full Court expressed its concurrence with the decision of the primary judge that s.533(1) of the Companies Code 1981(Q) was by, inter alia, s.79 of the Judiciary Act 1903-1973 made applicable to proceedings in this Court. And with this I would respectfully agree. Thus s.533 of the Companies Act (Vic.) 1981 is similarly applicable.
The learned judge was clearly of the opinion that consideration of s.533 of the Companies Act (Vic.) 1981 was within the jurisdiction of the Court. He dealt with the question of security for costs with that section in mind, and also by having regard to o.28 r.3 of the rules. He made reference to to, inter alia, Drumdurno v. Braham (1982) 42 ALR 563; Newton Travel Services Pty. Ltd. v. Ansett Transport Industries (Operations) Pty. Ltd. (1982) 44 ALR 163; Tradestock Pty. Ltd. v. TNT (Management) Pty. Ltd. & Ors (1977) 14 ALR 52; Memutu Pty. Ltd. v. Lissenden (1983) 8 ACLR 364 and Buckley v. Bennell Design and Constructions Pty. Ltd. (1974) 1 ACLR 301.
He took into account:-
(a) that Jet Corporation would be unable to pay the costs of the appellant parties if they were successful in their defence;
(b) that the court was unable to form a view as to the prospects of Jet Corporation succeeding in its claims;
(c) that the court was satisfied that if Jet Corporation succeeded in its claims it may appear that its financial position was worsened by the wrongful conduct of the appellant parties;
(d) that the court was satisfied that the claim of Jet Corporation was a genuine one;
(e) that there was no suggestion that the applications for security for costs were brought oppressively in an attempt to stifle a genuine claim;
(f) that most of the facts which Jet Corporation is required to prove to establish its claim are within the knowledge of some or other of the appellant parties and that many of the documents relevant to the claim are in their custody or control of some or other of them;
(g) that there are aspects of public interest inherent in a claim under the Trade Practices Act 1974 which weighed in the balance against the making of an order for security for costs;
(h) that it had not been proved that an order for security for costs would mean that Jet Corporation would not proceed with its claim;
(i) the court was not satisfied that Jet Corporation was not suing for its own benefit but for the benefit of Citicorp which was a secured creditor which had appointed a receiver and manager.
Looking at item (i) above it would appear that the total situation is not adequately covered unless further words are added, such as, "but it appears that the action is under the control of the receiver and manager appointed by Citicorp, is financed by Citicorp and is pursued for the benefit primarily of Citicorp and, subject to the interest of Citicorp, for unsecured creditors and Jet Corporation and that the decision whether the action should proceed or not is that of Citicorp." From the transcript of the proceeding before the learned Judge at first instance it appears that the case for the appellants concentrated rather on the notion that Jet Corporation was suing for the benefit of Citicorp within the meaning of o.28 r.3(1)(b). In this respect it was argued by Mr. Graham before the learned Judge that the action was brought by Jet Corporation in its own name and in its own right even though the right to the management of its affairs and the ability to cause it to engage in litigation resides in the receiver and manager. He pointed out that, so far as appears, should the action proceed the damages recoverable would or might well exceed the sum due to Citicorp in respect of its security. On this basis, in my view, it could well be held, as it was by the learned judge, that the action was not brought by Jet Corporation "for the benefit of" Citicorp within the meaning of the term: see Co-operative Farmers & Graziers Direct Meat Supply Ltd. v. Smart (1977) VR 386; Riot Nominees Pty. Ltd. v. Suzuki (Australia) Pty. Ltd. & Ors. (1981) 34 ALR 652. But to approach the matter through o.28 r.3(1)(b) alone is to obscure the reality of the situation, namely that Citicorp is using the name of Jet Corporation, as it is entitled to do and itself controlling the litigation for the purpose, primarily, of recovering its own debt. It is this reality which becomes important when the matter is approached with reference to s.533 of the Companies Act (Vic.) 1981. And in the decision of the matter by reference to s.533 in the judgment under appeal it does not appear that this factor was accorded weight. It would seem that the considerations of justice involved therein were not the subject of explicit submission. Indeed it only emerged in the hearing of this appeal at a late stage of Mr. Archibald's reply. The situation is that unless security for costs is provided Citicorp has the privilege of suing on its initiative and responsibility, for its benefit, on terms that if it loses it has no responsibility for costs. From the point of view of the justice of the situation this is far removed from a case where a plaintiff or applicant is the party instituting and conducting the litigation. The receiver and manager was appointed on 28 October 1982. The action was commenced on 27 June 1983. The commencement and control of the proceedings brought in the name of Jet Corporation may be regarded therefore as having resided in the receiver and manager. There is no suggestion from Jet Corporation that an order for security for costs will cause the action to be discontinued. The inference to be drawn from this circumstance and the evidence is that there are funds available for the maintenance of these proceedings whether or not an order for security for costs is made against Jet Corporation.
Once it appears, not only that there is a secured creditor in respect of whose claims against an insolvent company the proceedings are of special interest, but that the proceedings have been initiated by, and are controlled by the receiver and manager appointed by that secured creditor whose primary purpose is the recovery of his own debt, and there is a reasonable inference that that secured creditor is supporting the litigation financially, the injustice of that secured creditor pursuing his own interest in an action against the appellant parties with no risk to itself should the appellant parties succeed in their defence assumes a special significance on the question of the justice of granting or refusing an order for security for costs. It is a weighty consideration that the decision whether to sue or not to sue is that of Citicorp acting through the receiver and manager.
It was said by Megarry V.C. in Pearson v. Naydler (1977) 1 WLR 899 at 906-7; (1977) 3 All ER 531 at 536-7 that:-
"It seems plain enough that the inability of the plaintiff company to pay the defendants' costs is a matter which not only opens the jurisdiction but also provides a substantial factor in the decision whether to exercise it. It is inherent in the whole concept of the section that the court is to have power to order the company to do what it is likely to find difficult in doing, namely, to provide security for the costs which ex hypothesi it is likely to be unable to pay. At the same time, the court must not allow the section to be used as an instrument of oppression, as by shutting out a small company from making a genuine claim against a large company. . . . As against that, the court must not show such a reluctance to order security for costs that this becomes a weapon whereby the impecunious company can use its inability to pay costs as a means of putting unfair pressure on a more prosperous company. Litigation in which the defendant will be seriously out-of-pocket even if the action fails is not to be encouraged. While I fully accept that there is no burden of proof one way or the other, I think that the court ought not to be unduly reluctant to exercise its power to order security for costs in cases that fall squarely within the section."
Noting the Vice-Chancellor's reference to the use by a company of its impecuniosity as a weapon, it may be said that the use by a solvent secured creditor of the name of its insolvent company debtor in an action against a solvent party may well constitute the use of the company's impecuniosity as a weapon even less justifiably. And that is the situation in this case.
It appears, not by evidence, but by statement from the Bar Table that on 14 December 1983 an order was made by the Supreme Court of Victoria that Jet Corporation be wound up. A liquidator was appointed on that date. The order the subject of this appeal was made on 4 October 1983 and thus, before the order for winding up Jet Corporation. No submissions arising out of winding up or the appointment of the liquidator were made to this Court, save that Mr. Archibald submitted that the appointment of the liquidator did not disturb the control of the action by the receiver and manager.
When Mr. Archibald was asked whether the receiver and manager had not been replaced by the liquidator he replied, "They would not be displaced because the liquidator had rights, they are rights in respect of the unsecured creditors and his right must be deferred to the rights of those who represent the rights of the secured creditors." It would seem that this answer is, for present purposes at least, a sufficient answer. It is supported by reference to the observations of Romer L.J. in Gough's Garages Limited v. Pugsley (1930) 1 KB 615. There, a receiver had begun County Court proceedings in the name of the relevant company to obtain a new lease of business premises, and shortly afterwards an order winding up the company was made. Romer L.J. said, at p.626:-
"It is perfectly true (and it has been laid down over and over again) that where, as happened in this case, the debenture or trust deed securing the debenture contains the usual clause, that the receiver appointed under the deed shall be deemed to be the agent of the company, that the winding up of the company, or the compulsory liquidation of the company puts an end to the agency. But it does not put an end in any way to the powers of the receiver. In my opinion, when this liquidation order was made, the right of the receiver to proceed in the name of the company in the county court was in no wise affected."
See also the remarks of Goulding J. in Sowman v. David Samuel Trust Ltd. (1978) 1 WLR 22 at p.30:-
"All the principal authorities in my opinion lead to the same conclusion, which I will put in my own words as follows. Winding up deprives the receiver, under such a debenture as that now in suit, of power to bind the company personally by acting as its agent. It does not in the least affect his powers to hold and dispose of the company's property comprised in the debenture, including his power to use the company's name for that purpose, for such powers are given by the disposition of the company's property which it made (in equity) by the debenture itself."
In relation to the position of a defendant who, at the insistence of a receiver and manager, is sued in the name of a company of which it no longer acts as agent because of the winding up of the company the observations of Greer L.J. in Gough's Garages Ltd. v. Pugsley (supra) are in point. He said that the action "was properly brought by the receiver for the debenture holders in the name of the company. If the defendant landlords thought it was a hardship their remedy was to say, 'This company is in liquidation. If this action is to go on we must have security for costs in case we succeed in the action'."
Therefore, although it was not shown that, within the meaning of the words of o.28 r.3(1)(b) of the rules, Jet Corporation is suing not for its own benefit but for the benefit of some other person, namely Citicorp, nevertheless as indicated above the reality is that the action is brought by Citicorp, and is brought for its own immediate benefit rather than upon some hope that success in the proceedings will provide some benefit to Jet Corporation itself. Since the argument in this case I have been referred to the views of Toohey J. in Caruso Australia Pty. Ltd. v. Portec (Australia) Pty. Ltd. WAG 29 of 1983 decided on 30 March 1984 (unreported), which are relevant to circumstances such as those existing in this case.
In the light of the above it can be seen that the protection of the public interest in the enforcement of a liability under the Act does not depend on the absence of an order for security for costs. The action will proceed whether or not an order for security for costs is made. It can also be seen that the force which might otherwise have resided in items (b), (c), (d) and (f) above is, at least, greatly reduced.
It is to be observed that although the learned Judge was of opinion that s.533 of the Companies Act 1981 (Vic.) was applicable to a proceeding brought by a company in the Court he did not expressly attribute any significance to the statutory purpose of the section. Provisions similar or identical to s.533 have been enacted in England and throughout Australia. It proceeds by reference to the limitation of liability which is provided to corporations in the conduct of their affairs and the distinction between that limitation of liability and the unlimited liability of private persons. In general the impecunious condition of a litigant who is a natural person is not a ground for security for costs. But the section provides, in itself, authority to make an order for security for costs where all that is shown is that the company will be unable to pay the costs should it fail. If it is going too far to say, as was said by Street C.J. in Buckley v. Bennell Design and Constructions Pty. Limited (supra) at 303, and as I accepted in Tradestock Pty. Ltd. v. TNT (Management) Pty. Ltd. & Ors. (supra), that the discretion conferred by the section should be exercised merely with a predisposition in favour of the defendant party, nevertheless, the discretion is for the protection of the defendant from the unfair and possibly burdensome consequences of an unsuccessful claim against him by an impecunious company. In every case of such an action, where the result is in real doubt, risk of those consequences exists, and the need for protection exists. To my mind the statutory purpose is itself a factor deserving of weight in the exercise of thediscretion. And the greater the quantum of loss if the risk materializes and the less apparent the chances of success, the greater the weight. As was said by Megarry V.C. in the observations mentioned above, "the statute not only opens the jurisdiction but also provides a substantial factor in the decision to exercise it.".
In the result it is seen that the refusal of an order for security for costs operates with substantial injustice to the appellant parties and proceeds without recognition of Citicorp as dominus litis. Accordingly an order for security for costs in such amount or upon such conditions as to the learned Judge may seem proper should be made.
Having regard to the foregoing it is my view that this is an appeal in which it is proper for the Court on appeal to act upon the view that in the exercise by the learned Judge of the discretion conferred upon him a critical aspect of the situation was obscured and not given appropriate weight and justice in the situation was not achieved.
The following orders should be made :-
1. The appeals of the appellant parties are allowed with costs of and incidental to their relevant motions.
2. Leave is granted to Jet Corporation to amend the Statement of Claim if so advised.
3. Leave is reserved to the appellant parties to apply to this Court in respect of the amended Statement of Claim if so advised on reasonable notice.
4. Security for the costs of each of the appellant parties should be provided by Jet Corporation.
5. The determination of the amount and nature of such security is referred to the Judge from whose decision this appeal is brought.
JUDGE2
I agree with the reasons for judgment and the orders proposed by Smithers J.
JUDGE3
On 27 June 1983 JET CORPORATION OF AUSTRALIA PTY. LTD. (Jet Corp) in its capacity as Trustee of the JET CORPORATION AUSTRALIA TRUST, ELECTRUM ACCEPTANCE PTY. LTD. (Electrum Acceptance) and ELECTRUM FINANCE PTY. LTD. (Electrum Finance) as applicants commenced proceedings in this Court against the eleven respondents to be referred to hereafter. By their application amended in October 1983 they sought declarations that PETRES PTY. LTD., the first respondent (Petres), DIPSON PTY. LTD., the second respondent (Dipson), and WESTWIND JET CORPORATION PTY. LTD., the third respondent (Westwind), had contravened s.52 of the Trade Practices Act 1974 (the Act); and that the fourth to eleventh respondents, viz. TREVOR BURTON HUTTLEY, the fourth respondent (Huttley), JON DEAN WILSON, the fifth respondent (Wilson), JOHN BARRY COLLIER, the sixth respondent (Collier), LINDSAY QUENTIN HOGG, the seventh respondent (Hogg), EDWARD CHRISTIAAN SENT, the eight respondent (Sent), BRIAN FORSHAW, the ninth respondent (Forshaw), SCAPELA IRA NOMINEES PTY. LTD., the tenth respondent (Scapela), and ROVOIL PTY. LTD., the eleventh respondent (Rovoil), were, in summary, persons involved in those contraventions. In addition they sought orders for recovery of the amount of loss or damage suffered as a result of those contraventions together with the rectification of certain agreements. Claims were also made against the fourth to seventh respondents based on alleged breaches of their statutory and fiduciary duties as directors of Jet Corp. "Respondent" or "respondents" refers to the status or description of such parties in the Court below; here they are appellants.
Section 52 of the Act, so far as relevant, reads -
"(1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
(2) . . . . "
It is not necessary for present purposes to refer to all the material facts on which the applicants relied as set out in their amended Statement of Claim of 28 July 1983. Later I shall refer to the allegations made therein. Pursuant to Order 20 r.2 and Order 28 of the Federal Court Rules the respondents by three Notices of Motion, the parties to which were set out in the title pages, moved this Court for orders including orders that the proceedings be stayed or dismissed generally or in part and that the applicants provide security for costs and, in the case of two Notices of Motion, that particulars should be supplied. Order 20 r.2 reads -
"(1) Where in any proceeding it appears to the Court that in relation to the proceeding generally or in relation to any claim for relief in the proceeding -
(a) no reasonable cause of action is disclosed;
(b) the proceeding is frivolous or vexatious; or
(c) the proceeding is an abuse of the process of the Court,
the Court may order that the proceeding be stayed or dismissed generally or in relation to any claim for relief in the proceeding.
(2) The Court may receive evidence on the hearing of an application for an order under sub-rule (1)."
Order 28 r.3 reads -
"(1) Where, in any proceeding, it appears to the Court on the application of a respondent -
(a) that an applicant is ordinarily resident outside Australia;
(b) that an applicant is suing, not for his own benefit, but for the benefit of some other person and there is reason to believe that the applicant will be unable to pay the costs of the respondent if ordered to do so;
(c) subject to sub-rule (2), that the address of an applicant is not stated or is mis-stated in his originating process; or
(d) that an applicant has changed his address after the commencement of the proceeding with a view to avoiding the consequences of the proceeding,
the Court may order that applicant to give such security as the Court thinks fit for the costs of the respondent of and incidental to the proceeding.
(2) The Court shall not order an applicant to give security by reason only of paragraph (1) (c) if it appears to the Court that the failure to state his address or the mis-statement of his address was made without intention to deceive."
By consent the motions were heard together. Allegations which were made in the amended Statement of Claim filed on behalf of Jet Corp are set out in his Honour's Reasons for Judgment. Jet Corp is a company incorporated in Victoria and the trustee of the Jet Corporation Australia Trust. Subsequent to the events set out in those allegations, Laurence Brian Hunter and Peter Bernard Allen were appointed receivers and managers by Citicorp Australia Pty. Ltd. (Citicorp) of Jet Corp and the assets and undertakings of the Trust. Further, Citicorp had appointed receivers and managers of Electrum Acceptance and Electrum Finance respectively. We were told by counsel that after the hearing at first instance an order was made for the winding up of Jet Corp.
The learned Judge at first instance, for reasons which he gave, was not satisfied by the respondents that Jet Corp's claims in the action must fail or that they should be determined on a pleadings motion. In so finding, his Honour noted that it was not suggested the Court did not have jurisdiction in respect of the claims against Petres, Dipson and Westwind; in his view such claims constituted a genuine and substantial aspect of the controversy before the Court. He said that the claims made under the Act against the remaining respondents depended on and arose out of those claims. Further, he noted that the factual basis for the allegations forming the substance of the claim for breach of statutory and fiduciary duty against Collier and Hogg corresponded to that supporting allegations of contraventions of the Act; the acts said to constitute breaches of duty were acts of aiding and abetting. Accordingly, his Honour rejected the submission that the Court did not have jurisdiction over those claims. He considered that the facts alleged in the Statement of Claim disclosed real questions to be determined between the parties whose rights depended upon answers to those questions. He rejected the motions that proceedings be stayed or dismissed. He referred next to the application for security for costs. He said the Court was unable to form a view as to the prospects of Jet Corp succeeding in its claims; but if Jet Corp were successful, it might establish that its financial position had been worsened by the wrongful conduct of the respondents. Further, he said that Jet Corp was making a genuine claim; that in the circumstances of this case most of the facts to be proved by it to establish its claim were within the knowledge of some or other of the respondents and in their custody also were many of the relevant documents. In the exercise of his discretion he refused to make an order for security for costs. All the respondents have appealed against these orders made by his Honour.
In submissions before us, we were told that Petres had carried on the business of distribution of aircraft, an air charter business and a flying school business with which also was associated an aircraft maintenance business. These activities had been carried on under the business name of Schutt Aviation. It was the assets of those businesses that were sold by the Petres Sales Agreement. Westwind had carried on the business of aircraft sales, the assets of which were the subject matter of the Westwind Sales Agreement. The third agreement, the Dipson Sales Agreement, involved the sale of the issued share capital in the companies Electrum Acceptance and Electrum Finance. These Agreements will be referred to later. It was pointed out that although Electrum Acceptance and Electrum Finance were originally applicants at the hearing before the learned Judge at first instance, they had ceased to be applicants and had no part in the present litigation. Electrum Acceptance had carried on the business of aircraft leasing, and Electrum Finance of financing the acquisition of aircraft. Counsel's summary of the activities of the various companies is consistent with what is alleged in that regard in the Statement of Claim.
Senior counsel for Sent and Forshaw, Mr. Archibald, referred to the allegations in the amended Statement of Claim including para.17 that prior to 10 September 1981 his clients were directors of Electrum Acceptance, Electrum Finance, Petres and Westwind and were persons together with Wilson in effective control of the affairs of those companies. Further, it was alleged (para.20) that at all material times prior to 10 September 1981, Sent, Forshaw and Wilson were entitled to the assets of those companies and of the Schutt Unit Trust. It was further alleged in the Statement of Claim that by the so-called "First Wilson Agreement" dated 20 May 1981, Sent and Forshaw as vendors agreed with Wilson as purchaser to sell all their right title and interest in and to Petres, Electrum Finance, Electrum Acceptance, Westwind, Jet Charter Australia Pty. Ltd. and the Schutt Unit Trust (of which Petres was the Trustee) (referred to as the "Vendors' interests") for the sum of $4,800,000 payable by a deposit of $400,000 on 20 May 1981, a further instalment of $600,000 on 10 September 1981 and the balance, $3,800,000, within 26 months of 20 May 1981. By a further agreement dated 10 September 1981 (in substitution for the first Wilson Agreement and made pursuant to it), referred to as the "second Wilson Agreement", made between Petres and Westwind of the first part, certain other persons named in the schedule to the Agreement as vendors of the second part, Sent and Forshaw of the third part, Dipson of the fourth part and Wilson of the fifth part, Sent and Forshaw agreed to transfer or cause to be transferred to Dipson all the right title and interest of themselves and of the said vendors in the vendors' interests. The purchase consideration payable pursuant to the second Wilson Agreement was identical with that which was payable under the first Wilson Agreement, i.e. the sum of $4,800,000; such sum being payable as to $3,000,000 by Petres and Westwind and as to $1,800,000 by Dipson by deposit and instalments. The sums were to be paid on or within the dates stipulated in the first Wilson Agreement. It was acknowledged that the initial deposit of $400,000 had already been paid.
The Statement of Claim further alleged that at the time the first Wilson Agreement was made Wilson, as Sent and Forshaw well knew, was unable to pay the purchase consideration; and at the time when the second Wilson Agreement was made, Petres, Westwind and Dipson, as Sent and Forshaw knew, were unable to pay their respective shares of the purchase consideration. Counsel noted that having disposed of their interests in the group of companies Petres, Westwind and also Electrum Acceptance and Electrum Finance, as appeared from the amended Statement of Claim, Sent and Forshaw ceased to be directors of those companies of which they had been directors at 10 September 1981. There was no allegation of control, effective or otherwise, of the companies mentioned beyond that date.
The conduct upon which Jet Corp relied arose in substance, so it was said, from activities related to three Sales Agreements into which Jet Corp entered on 20 and 22 October 1981. The vendors in respect of those three Agreements were respectively Petres, Dipson and Westwind. The subject of the Petres Sales Agreement and the Westwind Sales Agreement comprised various business assets, including goodwill and trade debtors, and an assumption by the purchaser Jet Corp of certain liabilities. The prices agreed to be paid by Jet Corp under these two Agreements were respectively $10,899,360 and $1,100,640. The Dipson Sales Agreement provided for the sale of the issued capital of Electrum Acceptance and Electrum Finance to Jet Corp for $4.00. However, Sent and Forshaw had ceased to be directors of the companies Petres and Westwind by or at 10 September 1981. Further, the Statement of Claim contained no allegation or material from which it could be inferred that beyond 10 September 1981 (or in the case of Dipson, at all) Sent and Forshaw were persons, with Wilson or otherwise, who were in effective or any control of the affairs of Electrum Acceptance, Electrum Finance, Petres or Westwind. Accordingly, said counsel, on a fair reading of the Statement of Claim as a whole, there were no allegations that Sent and Forshaw were after 10 September 1981 involved with those companies, i.e. their involvement ceased at a date prior to the entry into the three Sales Agreements referred to. Para.33 of the Statement of Claim, as counsel pointed out, referred to the Petres Sales Agreement by which certain assets and liabilities totalling in value $10,899,360 were sold and the vendor Petres represented that the value of the assets and liabilities set forth in the Agreement was true and correct. The Statement of Claim followed the same format with respect to the Westwind Sales Agreement: it alleged the vendor Westwind represented that the value of the assets and liabilities referred to and set out in the Statement of Claim was also true and correct and by the Agreement the purchaser (Jet Corp) agreed to pay to the vendor, Westwind, the sum of $1,100,640 as the purchase price for the assets and liabilities set forth in the schedule to the Agreement. Counsel referred to para.37 of the Statement of Claim concerning the Dipson Sales Agreement and alleging that there was a sale and purchase of the issued shares in Electrum Acceptance and Electrum Finance for the sum of $4.00. It was further alleged in the Statement of Claim, as counsel pointed out, that on 21 December 1981 certain sums of money were received by or on behalf of Sent and Forshaw pursuant to the first and second Wilson Agreements. Counsel referred to para.45 of the Statement of Claim which alleged that prior to entering into each of the Petres, Dipson and Westwind Sales Agreements, certain representations, warranties and statements, referred to as the "Sales Agreement representations", were made to Jet Corp as to the value of the assets, liabilities, goodwill and leasehold improvements. Para.46 of the Statement of Claim, he pointed out, alleged that certain representations described as "the Pre-Settlement representations" were made to Jet Corp. They were in the same terms or to the same effect as the Sales Agreement representations. Further, certain Sales Agreement representations relating to the Petres Sales Agreement were also made to Jet Corp in a report from Messrs. Simon Lidgett, Collingwood & Co. dated 21 September 1981 (referred to as "the Lidgett report"). Para. 51 of the Statement of Claim alleged that the Pre-Settlement representations were also contained in two certificates dated 29 October 1981 and 21 December 1981 respectively from Messrs. Touche Ross & Co. Counsel pointed out that the dates of these certificates were later than those of the alleged Sales Agreements. It appeared, therefore, said counsel, that Sent and Forshaw had ceased their involvement with these companies prior to the latter entering into the Agreements in October 1981 and prior also to the Lidgett report and to the certificates of Touche Ross & Co. Furthermore, there was no allegation that Sent and Forshaw were in any way involved in causing the Agreements to be entered into or in the preparation of the Lidgett report or the Touche Ross certificates. He submitted that the mere involvement in the carrying out and completion of a prior contractual obligation (the second Wilson Agreement) could not be aiding or abetting conduct that was misleading or deceptive; nor was there any allegation that they were engaged or involved in the Pre-Settlement representations said to have been undertaken by Messrs. Huttley, Wilson and Collier. In more detail he referred to para.61 of the Statement of Claim and, in particular, sub-paras. (a) and (b) which he said were irrelevant, otiose and, irrespective of all other circumstances, should be struck out. The word "caused" in para.61(a) was, he said, an allegation of law not of fact. He submitted that the crucial allegations could have been those in which it was said that Sent and Forshaw aided and abetted Petres, Westwind and Dipson to engage in the wrongful conduct; yet, as to aiding and abetting, the allegations were only that they were aware of the conduct engaged in by those other entities and, in that state of awareness, received completion of the purchaser's obligation under the Wilson Agreements which had been entered into before any of this alleged misconduct could have occurred. He referred to Federal Court Rules Order 11 r.16 and Order 20 r.2. It was accepted, he said, that the lack of cause of action to entitle dismissal must be clearly demonstrated before an action could be dismissed at this stage. He referred to Dev v. The Victorian Railways Commissioners (1949) 78 C.L.R. 62 per Dixon J. (as he then was) at p.91: Bretherton v. Kave & Winneke (1971) V.R. 111 at pp.114-115. He referred to the Act s.75B: Yorke v. Lucas 49 ALR 672. He submitted that there was no capacity alleged or shown to exist in Sent and Forshaw to control the conduct of the three vendor companies at any relevant time because they were out of those companies or ceased to be directors of them as at 10 September 1981: R v. Lowery and King (1972) V.R. 560: Regina v. Hussain (1969) 2 Q.B. 567. Counsel discussed possible arguments that Sent and Forshaw were responsible for losses, if any, suffered by Jet Corp. He submitted that any misleading conduct by Sent and Forshaw must point to their participation in the very misconduct alleged; and to their affording affirmative assistance in respect of it. Receipt of monies pursuant to the Wilson Agreements did not, he said, provide any such nexus. He submitted, further, that the Statement of Claim was so vague and ambiguous that it was almost impossible to understand what was alleged against Sent and Forshaw; this was itself a ground for striking it out as embarrassing, particularly in accordance with the observations of Adam J. in Rubenstein v. Truth and Sportsman Ltd. (1960) V.R. 473 (Rubenstein).
Counsel referred next to the agruments as to the application for security for costs which had also been dismissed by his Honour. He submitted that Jet Corp was a corporate plaintiff; there was reason to believe that it would be unable to pay the costs if the respondents were successful; the evidence before the learned primary Judge did not enable him to form a view as to the prospect of Jet Corp succeeding in its claim, or as to the cause of its impecuniosity. He submitted the motions for security for costs were not brought oppressively in an attempt to stifle the claim of Jet Corp; nor would any order for security have that effect. He submitted there was an available person with assets, viz. Citicorp, who would benefit from the success of the application in priority to other persons. He submitted that Jet Corp was not suing for its own benefit but for the benefit of Citicorp. He outlined the benefits that Citicorp might derive from the action. He submitted there was a predisposition in favour of granting a defendant sued by an impecunious company protection by an order for security for costs. He referred to Buckley v. Bennell Design and Constructions Pty. Limited (1974) 1 A.C.L.R. 301 (Buckley) at pp.304-5: Pearson v. Naydler (1977) 1 W.L.R. 899 at pp.904-905, 906-7: Pacific Acceptance Corporation Ltd. v. Forsyth (1967) 2 N.S.W.R. 402 at p.407: Specialised Building Materials Pty. Ltd. v. E.U. Occusted Pty. Ltd. (1981) 58 F.L.R. 270 at p.273-4: Tradestock Pty. Ltd. v. TNT (Management) Pty. Ltd. 14 ALR 52 (Tradestock) at p.56: Newtons Travel Services Pty. Ltd. v. Ansett Transport Industries (Operations) Pty. Ltd. 44 ALR 163 (Newtons Travel Services) at p. 172: Collignon Developments Pty. Ltd. v. Wurth (1975) 1 A.C.L.R. 314 (Collignon) at p.315: Lynnebry Pty. Ltd. v. Farquhar Enterprises Pty. Ltd. (1977) 3 A.C.L.R. 133 (Lynnebry) at pp.134-5, 136: Saltergate Insurance Co. Ltd. v. Hagerty (1979) 4 A.C.L.R. 531 (Saltergate) at pp.533-4. Further, he submitted that where it appeared that the making of such an order would not preclude an impecunious corporate applicant from pursuing its claim, then an order should be made in the absence of special circumstances: Newtons Travel Services: Drumdurno Pty. Ltd. v. Braham 42 ALR 563 (Drumdurno) at p.570: Tradestock at p.56. He submitted there were no relevant special circumstances here; that where there was an impecunious corporate applicant and other persons with means to provide security and likely to be the recipients of the fruits of any victory, an order for security should be made. He referred to Lloyd v. Hathern Station Brick Company Limited (1901) 85 L.T. 158 (Lloyd): Semler v. Murphy (1968) Ch. 183 at pp.191-192: Cowell v. Taylor (1886) 31 Ch.D. 34 at pp.38-39: Saltergate. He referred to Order 28 r.3(1)(b). He referred to Andrews v. Caltex Oil (Australia) Pty. Ltd. 40 ALR 305 (Andrews) at p.308. He submitted an impecunious corporate applicant exercising a personal right under s.82 or s.87 of the Act was in no better position to resist an order for security for costs than one in any other personal action. For the purpose of the motion, he submitted the Court should assume that the respondents would be successful in their defence. He referred to Saltergate at p.535: Collignon at p.315: Lynnebry. He contended that the learned primary Judge erred in the exercise of his discretion in giving too little weight to the fact that an order for security would not prevent Jet Corp proceeding with its claim; that Jet Corp's claim was under the Act; and that Jet Corp was suing, not for its own benefit, but for the benefit of Citicorp in whole or in substantial part. He submitted that the Federal Court was a Court having jurisdiction in the matter for the purposes of s.533 of the Companies (Victoria) Code and might therefore apply the provisions of that section in considering such an application. He referred to Bell Wholesale Company Pty. Limited v. Gates Export Corporation, Full Court of the Federal Court (G.113 of 1983, unreported, 1 March 1984) (Bell Wholesale).
I have set out the allegations in order to consider whether they could be sufficient to support a finding of participation. I do not agree that e.g. the acceptance of money as part of the proceeds of the sale of the assets to Jet Corp can per se be so described or that it may be inferred that accepting payments or receiving money pursuant to the Wilson Agreements provides a "nexus" between Sent and Forshaw and the "aiding and abetting". It follows that in my opinion the Statement of Claim, so far as it applies to Sent and Forshaw, does not allege facts or allege sufficient facts to entitle the claim against them to succeed. It should therefore, in my opinion, be struck out. I do not accept, however, the arguments that it is "incurably bad" or that the action should be dismissed. Jet Corp should therefore be given an opportunity, as it will in the Order I propose, to re-plead. The highest authority precludes a dismissal of an action (as opposed to the striking out of a pleading) unless the lack of a cause of action is clearly demonstrated. See e.g. per Barwick C.J. in General Steel Industries Inc. v. Commissioner for Railways (N.S.W.) (1964) 112 C.L.R. 125 at p.129. The lack of a cause of action has not been here demonstrated, clearly or at all. Accordingly, this is not an appropriate case, in my opinion, for dismissing the action against Sent and Forshaw. I am conscious that in differing from the learned primary Judge, I am intruding into an area of practice and procedure; yet this trial, with so many groups of respondents, sued on different bases, may be a long one. It is easy to envisage circumstances in which, because the Statement of Claim makes a more specific allegation against Sent and Forshaw, cross-examination by their counsel of a witness would be indicated (and be appropriate) days before the presentation of particular aspects of the case against them. It seems to me that it would be an injustice that a hearing should proceed without the pleadings being in order, if indeed the facts or instructions allow addition or amendment before the action starts. The detailed nature of the Statement of Claim suggests it may not be possible to make further assertions against Sent and Forshaw.
Mr. Chernov, senior counsel for Collier and Hogg, submitted in some detail that the Statement of Claim as presently drawn did not disclose a cause of action against his clients. He put forward a separate argument as to aspects of it which could be described as embarrassing. In particular, and in respect of the allegations in paras. 59 and 60, he argued that the use of "causing" was, in effect, pleading an allegation of law whereas in a pleading allegations of fact only were permissible; that no other fact alleged in the Statement of Claim could amount to "causing" either the relevant Agreements to be entered into or completed or the preparation of the certificates of Touche Ross & Co. He referred to Rubenstein and, in particular, the quotation there from Cotton L.J's judgment in Phillips v. Phillips (1878) 4 Q.B.D. 127 at p.139. It may be that Order 11 r.2(a) is to a similar effect. He made an additional criticism of the use of "causing"; it was an assertion of an ultimate conclusion which might be derived from facts pleaded but was not by itself permissible. I observe that presumably any person faced with the use of such a word in a Statement of Claim would seek particulars of the facts or matters upon which reliance was to be placed for such an allegation; but perhaps this does not fully answer the criticism. Following a recital of various facts relied upon as constituting the "cause" of a certain event the use of "causing" as a summarizing word would perhaps be more readily acceptable. The word "caused" or aspects of it is commonly found in pleadings, e.g. Bullen and Leake and Jacobs' Precedents of Pleadings 12th ed. p.517-518 offering a precedent of a Claim for Damages for Breach of Statutory Duty. The paragraph preceding the Particulars is worded -
"The said accident was caused by the breach of statutory duty . . . . "
The precise nature of the statutory duty is then explored in the rest of the precedent under the heading "Particulars". Then the word "causing" again is used in the Particulars. In the precedent for a Claim for Damages for Fraud on the Sale of Shares (ibid. p.454), one assertion is -
"7. The defendants at the time when they made or caused to be made the said representations knew them to be false . . . .
8. The defendants made or caused to be made the said representations in order to induce . . . . "
(cf. the reference by the editors of 1 Smith's Leading Cases 4th ed. p.103 (Willes and Keating JJ) to pleadings "adopting the known and understood formulae used for the sake of brevity in cases of frequent occurrence . . . . "(as quoted in Bullen and Leake Precedents of Pleadings 3rd Ed p.x)).
Similar or cognate phrases or words to "caused" are "occasioned by", "as a result whereof". In prosser Law of Torts 4th ed. at p.237 (but under the heading "Causation in Fact"), it is said -
"Causation is a fact".
At p.236 we are reminded -
"The fatal trespass done by Eve was cause of all our woe."
This was, I suggest, an allegation of fact against Eve.
If one accepts that "causing" can be a word which may have a legal or factual implication, in my view, its use in para.50 in relation to the so-called Sales Agreement representations is, as was intended, to be read as an allegation of fact (or at worst, of mixed law and fact). The facts or matters on which it relies, not set out in the pleading, are to be elicited by seeking particulars in answer to a request. If such particulars provide no further elucidation or state only that the allegations as pleaded are relied on, this can be said to be a mere "begging the question". See per Windeyer J. in The National Insurance Co. of New Zealand Ltd. v. Espagne (1960-1961) 105 C.L.R. 569 at p.590 and his reference to petitio principii. Or a question of law as to the sufficiency of the assertions might arise for decision. The same applies to the use of "causing" in para.53 in relation to the Pre-Settlement representations. This paragraph refers to persons including Collier; the same form is adopted in para.54 against Hogg in relation to Pre-Settlement representations. My view as to the sufficiency of the allegation against Hogg is the same as for Collier. I do not agree that the Statement of Claim, so far as it applies to Collier and Hogg, should be struck out.
The respondents, Wilson and Huttley also contended through their counsel, Mr. Hargrave, that paras.50 and 53 of the Statement of Claim were open to this criticism in relation to the word "causing". My view is accordingly the same as that above. I note that in the case of those respondents the application was only that the paragraph should be struck out and the pleader be given the opportunity to re-plead. It was specifically disavowed that the whole of the proceedings against those persons be struck out; though liability was disputed. I do not agree the Statement of Claim, so far as it applies to Wilson and Huttley, should be struck out.
Security for Costs -
Section 56 of the Federal Court of Australia Act 1976, so far as relevant, reads -
"(1) The Court or a Judge may order a plaintiff in a proceeding in the Court or an appellant in an appeal to the Court to give security for the payment of costs that may be awarded against him.
(2) The security shall be of such amount, and given at such time and in such manner and form, as the Court of Judge directs.
. . . .
(5) This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the furnishing of security."
Order 28 of the Federal Court Rules is headed "SECURITY FOR COSTS". Rule 1., so far as relevant, provides -
"1. In this Order -
(a) . . . .
(b) references to a respondent extend to any person against whom a claim for relief is made in any proceeding."
Rule 3, so far as relevant, provides -
"(1) Where, in any proceeding, it appears to the Court on the application of a respondent -
(a) . . .
(b) that an applicant is suing, not for his own benefit, but for the benefit of some other person and there is reason to believe that the applicant will be unable to pay the costs of the respondent if ordered to do so;
(c) (d) . . . .
the Court may order that applicant to give such security as the Court thinks fit for the costs of the respondent of and incidental to the proceeding."
(See supra for Rule 3 in full).
Rule 4 provides -
"4. Where the Court orders an applicant to give security for costs, the security shall be given in such manner, at such time, and in such terms (if any), as the Court may by order direct."
Rule 6 provides -
"6. This Order does not affect the provisions of any Act of the Commonwealth or of a State or Territory under which the Court may require security for costs to be given."
Section 79 of the Judiciary Act 1903 reads -
"The laws of each State or Territory, including the laws relating to procedure, evidence, and the competency of witnesses, shall, except as otherwise provided by the Constitution or the laws of the Commonwealth, be binding on all Courts exercising federal jurisdiction in that State or Territory in all cases to which they are applicable."
Sub-s. 533(1) of the Companies (Victoria) Code reads -
"Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his defence, require sufficient security to be given for those costs and stay all proceedings until the security is given."
Whether or not the precise wording of that section is to be applied to the situation here hardly seems important; it is in a form widely to be found in the Commonwealth and its content would appear to be material to be considered in the exercise of any discretion. However, the Full Court of this Court in Bell Wholesale approved the application of a similar section in the Companies (Queensland) Code to proceedings in this Court. The Reasons for Judgement there also indicate that it is appropriate, at least in some circumstances, that persons or entities who may benefit by the result of their litigation should fund the risk of it. Buckley suggests that there should be a predisposition towards ordering security where there is an impecunious plaintiff. See per Street C.J. at p.305.
If there is such a predisposition, it should have greater weight where it has not been shown that the provision of security would prevent or stifle the claim being continued by the plaintiff; particularly perhaps where at least the indications are (or it has not been proved to the contrary) as here, the plaintiff, Jet Corp, will not be able to pay all costs if any of the present respondents are successful. But I do not find it necessary to proceed upon the basis that the relevant legislation implicitly requires any such predisposition.
The Reasons for Judgement recite a most comprehensive list of the matters with which the learned primary Judge dealt in arriving at the exercise of his discretion. He did not, so far as I can see, indicate that there was any predisposition towards the granting of security; nor did he advert to the notion that if the person suing was insolvent, then prima facie the defendant might be entitled to an order for security. Saltergate is an example of a case where this proposition was applied. His Honour could not have known that Jet Corp has gone into liquidation. We are told that the order in this regard was made on 4 December 1983, i.e. after his Honour had given judgment. His Honour was obviously assisted greatly in the exercise of his discretion by reference to Co-operative Farmers' & Graziers' Direct Meat Supply Ltd. v. Smart (1977) V.R.386 (Co-operative Farmers'). In that case the plaintiff was a producer society registered under the provisions of the Co-operation Act 1958. Kaye J. there did not consider it was permissible to infer that a registered society was subject to s.363 (its terms are the same as s.533 supra) of the Companies Act 1961 but decided it was subject to the general rule as to giving security. He said at p. 387 that the financial position of the plaintiff was:-
". . . .at its best, uncertain and that if the defendants were successful in the action, the plaintiff might be unable to pay their costs."
Kaye J. did not accept a submission that the plaintiff should be treated as if it was a foreign insolvent company, nor, as I have said, did he consider it permissible to apply s.363 of the Companies Act. He referred to the rule at common law that poverty of the litigant is not a ground for ordering him to provide security for costs; but also to the exception in the case of an "insolvent person who sues as nominal plaintiff for the benefit of others". Further, Kaye J., in deciding that this exception existed relied upon the case of Rhodes v. Dawson (1886) 16 Q.B.D. 548 (Rhodes) to determine whether the plaintiff against whom a receiving order had been made was merely a nominal plaintiff. He found that a receiver appointed by the Court (as he was in Rhodes) was not an agent or trustee for other secured creditors at whose suit he was appointed or for the company. However, the receiver in our case was appointed not by the Court but by Citicorp, and the litigation commenced after that appointment and before Jet Corp was in liquidation.
Here the learned primary Judge referred to the rule contended for by counsel that a plaintiff who is without assets but who is suing for the benefit of others may be required to give security. However he was not satisfied that Jet Corp was suing not for its own benefit, but for the benefit of e.g. Citicorp. Yet it seems clear that Jet Corp is so suing, at least partly. Thus, he should have taken this into account in the excerise of his discretion. He noted that a plaintiff, by the appointment of a receiver of his property, is not prevented from suing in his own right without providing security. He was assisted by Rhodes where Lindley L.J. at pp.553-554 summarised the matter before the Court thus -
"The question, therefore, is narrowed to this: if an action is brought by a person against whom a receiving order has been made under the Bankruptcy Act, 1883, but who is not adjudicated bankrupt, can he be properly ordered to give security for costs? The law upon this subject is well summed up in the last edition of Chitty's Archbold, vol.1, part 5, ch.33, p.398: "The plaintiff will not be compelled to give security for costs merely because he is a pauper, or bankrupt, or insolvent, and this even in a qui tam action. And this rule applies where the plaintiff is trustee of a bankrupt and is suing for the benefit of the estate; or where the plaintiff is suing as executor for the benefit of the testator's estate." The law relating to receiving orders is contained in ss.5 et seq. of the Bankruptcy Act, 1883; and from then it appears that a receiving order is not equivalent to an adjudication of bankruptcy; it does not divest the debtor of his property, nor make him a bankrupt, nor place him under the disabilities of an adjudicated bankrupt."
In Rhodes the circumstances were most unusual. The defendant, Dawson, had entered into a contract with Rush to carry out certain repairs. Rush employed the plaintiff, Rhodes, to do the work. Afterwards a petition under the Bankruptcy Act 1883 was presented against Rush and a receiving order made. The plaintiff, Rhodes, sued the defendant to recover the cost of the work. The defendant interpleaded and it was ordered that the amount in dispute be paid into Court by the defendant. An interpleader issue was directed by a Master whereby Rush (or his trustee) should be plaintiff and Rhodes the plaintiff in the action, the defendant. The question to be tried was whether the sum paid into Court (63 pounds) should be the property of Rhodes or Rush.
Lindley L.J. said (p.554) that notwithstanding the receiving order the plaintiff could not be regarded as the mere instrument of some other person. We were told that since the hearing before the learned Judge at first instance, Jet Corp, as I have mentioned, is in liquidation. In my view, though Kaye J. in Co-operative Farmers' may have been assisted by his reference to Rhodes and other cases to conclude that the exception, i.e. that security would be ordered where the plaintiff was a "mere shadow", did not apply in the case before him we are not similarly assisted in considering whether Jet Corp (in liquidation) whose action is supported by Citicorp should give security. Kaye J. also noted that a receiver had been appointed (as there has been of Jet Corp). And he referred to evidence that the assets of the plaintiff (excluding the amounts cliamed of the defendant) were sufficient to satisfy the claims of all secured creditors and the prospects of unsecured creditors being paid their debts depended to a material degree upon the outcome of the action. This was a finding adverse to the submission of counsel for the applicant that in reality the action had been commenced by receivers and managers for the benefit of secured creditors. For myself I do not find that Rhodes has any application here and have derived less assistance from the Co-operative Farmers' case than did the learned Judge at first instance.
However, I have similarly found helpful (with respect) the judgment of O'Bryan J. in Ferncroft Pty. Ltd. v. Kew (Supreme Court of Victoria, 22 November 1979 unreported). There are, of course, significant differences in the situation there in that it was not suggested the plaintiff was in any sense a nominal plaintiff. Further, the liquidator of the plaintiff gave evidence that there was enough in hand to meet the defendants' costs and a possibility of receiving further funds before the hearing. There was but one entity with one interest sued (though six partners); whereas here there are numerous respondents or groups of respondents. It is clear from the pleadings that a separate allegation or series of allegations is made against each respondent. Thus it seems inevitable that the various respondents will have to be separately represented and provide costs for hearing in which their own interest is not dominant. Further, the application in Ferncroft was brought in reliance upon s.363(1) equivalent to s.533(1) above of the Companies (Victoria) Code which contains no equivalent to the words in Order 28 r.3(1)(b) as to an applicant suing not for his own benefit. And in Ferncroft the defendants themselves, no doubt to their own advantage, joined third parties, thereby presumably adding to the length and cost of the hearing. His Honour was of the view that to order security would operate oppressively against the plaintiff and hinder it from prosecuting the claim, quite unlike the instant case. Nor was O'Bryan J. concerned with a situation where, as here, most of the facts and documents needed to be proved by Jet Corp were within the knowledge and in the custody of some or other of the respondents, if that be a matter of significance. No doubt these various factors assisted (and if I may say, with respect, properly so) O'Bryan J. to refuse the application. His Honour's statement of principle is applicable here; but finally I regard the decision in a negative way as supporting the case for ordering security. The learned Judge at first instance also was, as earlier mentioned, not satisfied that Jet Corp was suing not for its own but for the benefit of another person, Citicorp; yet it is entirely clear that Jet Corp at least partly is so suing and, I understand, this was not challenged in argument.
These considerations lead me to the conclusion that there could well be an injustice here, viz. that Jet Corp is to be able to sue, without risk to itself, all the groups of respondents in the one action and as a result the trial of the issues between it and the respondents will be much longer and therefore more expensive than if the (groups of) respondents were sued separately. Yet there is, as his Honour found, reason to believe that Jet Corp will be unalbe to pay the respondents' costs if required. Such an inability is, in the words of Megarry V.-C. in Pearson v. Navdler (supra) at p.906-
". . . .a matter which not only opens the jurisdiction but also provides a substantial factor in the decision whether to exercise it. . ."
I am of the view that the discretion of the learned trial Judge who had not the benefit of all the facts to which we have been referred, miscarried. We are able and therefore should exercise the discretion ourselves.
My view is that in association with all other factors which the learned Judge detailed, the (what I shall call) impecuniosity of the applicant Jet Corp in a trial where it has sued groups of respondents, thus increasing the costs of any one group where at any one time the hearing is not specifically being directed to the particular issues which concern that group, assumes greater significance. If to that is added that Jet Corp is suing at least in part in the interest of Citicorp, and that to order security would not stifle the action, I consider the argument for exercising the discretion in favour of the granting of security is overwhelming. Not to do so would, in the words of the majority in House v. The King (1936) 55 C.L.R. 499 at p. 505, effect a "substantial wrong" requiring this Court's intervention. It is no light matter, as that authority shows, to interfere with an exercise of a discretion; still less so when what is being reviewed is a matter of practice and procedure. But, as was said in Adam 2. Brown Male Fashions Proprietary Limited v.Philip Morris Incorporated (1981) 148 C.L.R. 170 (Adam P. Brown) at p.177 "the question of injustice flowing from the order appealed will. . .be a relevant and necessary consideration". Nothing suggests that the respondents here are litigants". . . .with a long purse or a litigious disposition. . . ." (In re the Will of F.B. Gilbert (dec.) (1946) 46 S.R. (N.S.W.) 318 per Jordan C.J. at p.323, quoted by the High Court in Adam P. Brown) who are acting unreasonably in their appeal.
The Orders I propose are -
1. The appeals as to the Statement of Claim of Sent and Forshaw be upheld.
2. The Statement of Claim so far as it applies to Sent and Forshaw be struck out with liberty to Jet Corp to file an amended Statement of Claim against them or either of them within 21 days.
3. The appeals of all other appellant respondents as to the Statement of Claim be dismissed.
4. The appeals of all appellant respondents as to the application for security for costs be upheld.
5. Security for the costs of each appellant respondent against whom this claim proceeds be provided by Jet Corp.
6. The matter be remitted to a Judge of this Court to make appropriate orders for security for costs.
7. Jet Corp to pay the costs of this appeal of each of the appellant respondents in respect of motions on which they were successful; otherwise each party to pay his ot its costs.