Smyth v Meridian Oil NL
[2004] WASCA 49
•9 MARCH 2004
SMYTH -v- MERIDIAN OIL NL [2004] WASCA 49
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2004] WASCA 49 | |
| THE FULL COURT (WA) | |||
| Case No: | FUL:167/2003 | 9 MARCH 2004 | |
| Coram: | MCKECHNIE J JENKINS J | 9/03/04 | |
| 7 | Judgment Part: | 1 of 1 | |
| Result: | Leave to appeal granted, Appeal allowed, Matter remitted to Master | ||
| B | |||
| PDF Version |
| Parties: | PETER MARK SMYTH MERIDIAN OIL NL |
Catchwords: | Corporations Practice and procedure Security for costs Whether a director at the time of losses should explain losses Litigation factor Whether a factor in making order for security |
Legislation: | Nil |
Case References: | BPM Pty Ltd v HPM Pty Ltd (1996) 14 ACLC 857 Clairs Keeley v Treacy & Co [2003] WASCA 299 Meridian Oil NL v Smyth & Ors [2003] WASC 201 West v Jackson McDonald [2001] WASC 198 Ariss v Express Interiors Pty Ltd (in liq) [1996] 2 VR 507 Caruso Australia Pty Ltd v Portec (Aust) Pty Ltd (1984) 1 FCR 311 Engel Pty Ltd (in liq) v Leeds, unreported; SCt of WA; Library No 940403, 20 July 1994 Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 House v The King (1936) 55 CLR 499 Latoudis v Casey (1990) 170 CLR 534 Pearson v Naydler [1977] 3 All ER 531 Permanent Building Society (in liq) v Wheeler (1992) 10 WAR 109 Sent & Petres & Collier v Jet Corporation of Australia Pty Ltd (1984) 8 ACLR 979 Spargos Mining NL v Fuller (2003) 21 ACLC 860 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE FULL COURT (WA) CITATION : SMYTH -v- MERIDIAN OIL NL [2004] WASCA 49 CORAM : MCKECHNIE J
- JENKINS J
- Appellant
AND
MERIDIAN OIL NL
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram : MASTER SANDERSON
Citation Number : [2003] WASC 201
File Number : CIV 1208 of 1995
(Page 2)
Catchwords:
Corporations - Practice and procedure - Security for costs - Whether a director at the time of losses should explain losses - Litigation factor - Whether a factor in making order for security
Legislation:
Nil
Result:
Leave to appeal granted
Appeal allowed
Matter remitted to Master
Category: B
Representation:
Counsel:
Appellant : Mr K J De Kerloy
Respondent : Mr C G Colvin SC & Mr M C Hotchkin
Solicitors:
Appellant : Freehills
Respondent : Hotchkin Hanly
Case(s) referred to in judgment(s):
BPM Pty Ltd v HPM Pty Ltd (1996) 14 ACLC 857
Clairs Keeley v Treacy & Co [2003] WASCA 299
Meridian Oil NL v Smyth & Ors [2003] WASC 201
West v Jackson McDonald [2001] WASC 198
(Page 3)
Case(s) also cited:
Ariss v Express Interiors Pty Ltd (in liq) [1996] 2 VR 507
Caruso Australia Pty Ltd v Portec (Aust) Pty Ltd (1984) 1 FCR 311
Engel Pty Ltd (in liq) v Leeds, unreported; SCt of WA; Library No 940403, 20 July 1994
Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972
House v The King (1936) 55 CLR 499
Latoudis v Casey (1990) 170 CLR 534
Pearson v Naydler [1977] 3 All ER 531
Permanent Building Society (in liq) v Wheeler (1992) 10 WAR 109
Sent & Petres & Collier v Jet Corporation of Australia Pty Ltd (1984) 8 ACLR 979
Spargos Mining NL v Fuller (2003) 21 ACLC 860
(Page 4)
1 MCKECHNIE J: This is an application for leave to appeal to be heard together with the appeal against the decision of Master Sanderson refusing the first defendant's application for security of costs, the decision being reported as Meridian Oil NL v Smyth & Ors [2003] WASC 201.
2 The grounds of appeal assert the Master's discretion miscarried in failing to attribute weight to various matters particularised and in making errors of fact and law.
3 There is no issue that the jurisdiction of the Master to make the order was enlivened as the jurisdictional requirements were satisfied nor is it in issue that the discretion is unfettered.
4 At [3] and [4] the Master summarised the factors which each side contended were important in the exercise of discretion, noting that the two factors raised by the first defendant carried considerable weight. They were that if the first defendant (appellant) is successful in defending the action he will be left with a substantial legal bill which he will have no chance of recovering and, second, there are shareholders of the plaintiff who are financing this litigation and who will be the sole beneficiaries if the action is successful.
5 The Master considered at [13] that the issues were finely balanced. In that balance he put one issue wrongly:
"On the other hand, there is high likelihood that if the order for security is made, the action will be stultified."
6 There is no evidence that the action will in fact be stultified. Mr Colvin for the respondent concedes this but argues that the comment has to be seen in context and as such is a reference to the purpose for which the appellant brought the application and goes to the bona fides of the application, a matter which the Master noted by referring to Anderson J's comments in BPM Pty Ltd v HPM Pty Ltd (1996) 14 ACLC 857 at 860. I am, however, unable to read the judgment in the context as leading to that conclusion and I think the statement to be in error.
7 The main factor that led the Master to the conclusion that he should not order security is:
"14. … The main factor that has led me to that conclusion is the uncontested evidence that at the time the losses were allegedly sustained by the plaintiff, the first defendant was one of its directors. In saying that I am not
(Page 5)
- purporting in any way to determine the strength or otherwise of the plaintiff's case. But an individual who is a director and during whose stewardship substantial losses are incurred, should explain how it was that such losses were incurred."
8 If this is meant as a statement of general principle I am unable to agree with it. It seems to be contrary to Anderson J in BPM Pty Ltd v HPM Pty Ltd at 862. The statement is made against the background that the Master had made no assessment of the strength of the respondent's case.
9 Mr Colvin submits that, in context, the Master is dealing with an aspect of the application which is important, the bona fides of the appellant's application for security, and refers back again to the summary of the plaintiff's submissions before the Master at [5].
10 While there is some force in this submission the fact remains that it is not the way in which the Master expressed himself. Furthermore, he based his conclusions on the pleadings and not on the strength or otherwise of the respondent's case.
11 I am of the opinion therefore that for these two short reasons, the appeal should be allowed and the order set aside. Mr Colvin submitted that there would be no substantial miscarriage of justice in refusing leave because the Master said at [15]:
"I would, however, not rule out a further application being made at a later date. It may be that once the first defendant has filed a defence and discovery has been given, circumstances which would allow the question of security to be revisited."
12 While there is a superficial attraction in that line of reasoning it must, with respect, be rejected. The appellant would in truth be succeeding if, despite having his arguments accepted by this Court, he would merely have another opportunity before the Master, not the opportunity which he has already had. So in my view not only should leave to appeal be granted but the appeal should be allowed.
13 The question now comes as to what should happen. In the normal course we would exercise the discretion afresh. This case is not, however, quite normal because a defence has now been filed. The respondent would wish to make submissions upon it. The appellant agrees that that should be so but argues that we should nevertheless exercise the power.
(Page 6)
14 I consider that the matter should go back to the Master for consideration in the light of these reasons, as I will shortly also expand them, and also because there is now a defence filed and the Master should consider that as well.
15 The reason I consider it more appropriate for the Master to do that is twofold: First, the Master has an intimate knowledge of this case. Over the years he has managed it and heard a number of applications in respect of the pleadings. It is not merely a case of us receiving some few submissions on the significance of the defence. Secondly, it preserves rights of further appeal because it is necessary to consider the new material, namely the defence, not just the material previously before the Master.
16 I would, however, make some comments. One of the matters which the Master put in balance in relation to the appellant is the fact that there are shareholders standing behind the respondent who stand to benefit from the litigation but are not prepared to commit to secure the appellant's costs in the event that he is successful in defending the action.
17 Since the Master's decision the Full Court has delivered its decision in Clairs Keeley v Treacy & Co [2003] WASCA 299 and the comments of Pullin J at [203] now have a particular relevance. In West v Jackson McDonald [2001] WASC 198 I made comments which are pertinent to the present. I said at [107]:
"If the action is ultimately successful, one would reasonably expect that those who are prepared to fund the litigation will gain a significant return on their investment. I have assumed, for the purposes of this application, that any such funding is legal and not champertous."
18 At [108]:
"Even so, the funding of litigation is not simply the commercial purchase of a commodity such as a chose in action and the balancing of the risk against return. The principal purpose of private litigation is to enable a person to assert and claim rights at law, whether under a contract or otherwise. Litigation is always something of a gamble and the outcome can seldom be predicted with certainty. If persons are prepared to take a gamble on the outcome of litigation by funding a plaintiff in the expectation of reward if the plaintiff is successful, they ought also be prepared to take the equal risk of funding a defendant in
(Page 7)
- the event that the litigation is unsuccessful. Otherwise they would be wagering only a fixed sum (that which is advanced to the plaintiff) while the defendant would bear all the risk in the event that it obtained judgment and the plaintiff were unable to pay. This does not seem just. The possibility of a costs order against the litigation funder in due course is not certain and in any case does not correct the injustice."
19 What does not make that quotation completely apposite is the reference to private litigation. Mr Colvin argues that this litigation is not to be viewed in quite the same way as private litigation because there is a public interest component in actions alleging a breach of a director's statutory duties. I accept this is a factor to be weighed, although its weight is dependent on all the particular circumstances of an individual case.
20 The Master made findings about the appellant's credibility based on two affidavits which were filed by him. In my opinion those findings were open to the Master. However, they are relevant only to the question of improper purpose in this case and not to any wider purpose. I say that because the Master took it into account as a factor but did not clearly express reasons why he took it into account.
21 For all the above reasons, I consider that the appropriate orders of this Court should be that leave to appeal be granted, the appeal be allowed, the matter remitted back to the Master to be dealt with in accordance with this judgment and in light of the filing of the defence.
22 JENKINS J: I am in agreement with the reasons and proposed orders of McKechnie J and I have nothing further to add.
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