State of Western Australia v Southern Equities Corporation Ltd (in liq)

[1997] FCA 435

C A T C H W O R D S
PRACTICE AND PROCEDURE - claim - cross - claim - whether separate hearing of cross-claims - overlap of issues - some separate issues - projected lengthy hearing - whether preliminary issues should be determined - factual issues underlying preliminary issues - overlap of issues general to claim - separate hearings declined.

Trade Practices Act 1974

STATE OF WESTERN AUSTRALIA v. SOUTHERN EQUITIES CORPORATION LTD (In Liquidation), WARDLEY AUSTRALIA LIMITED, LAWRENCE ROBERT CONNELL, WARDLEY AUSTRALIA SECURITIES LIMITED, ROTHWELLS LIMITED (In Liquidation), JAMES PHILLIP YONGE and CROSS RESPONDENTS
WAG 115, 116 and 118 of 1990

FRENCH J
PERTH
19 MAY 1997

IN THE FEDERAL COURT       )
OF AUSTRALIA   )
WESTERN AUSTRALIA           )
DISTRICT REGISTRY               )
GENERAL DIVISION                )  No. WAG 115, 116 and 118 of 1990

B E T W E E N:  STATE OF WESTERN AUSTRALIA

Applicant

and

SOUTHERN EQUITIES CORPORATION LTD

(In liquidation)

First Respondent

WARDLEY AUSTRALIA LIMITED

Second Respondent

LAWRENCE ROBERT CONNELL

Third Respondent

WARDLEY AUSTRALIA
  SECURITIES LIMITED

Fourth Respondent

ROTHWELLS LIMITED
  (In Liquidation)

Fifth Respondent

and

JAMES PHILLIP YONGE

Sixth Respondent

and

CROSS RESPONDENTS

MINUTE OF ORDER

JUDGE MAKING ORDER:      FRENCH J.
DATE OF ORDER:  19 MAY 1997
WHERE MADE:  PERTH
THE COURT ORDERS THAT:

1. The claim and cross-claims will be heard together.

1. Costs on the issue of a separate hearing of the cross-claims
     and the separate hearing of other issues be reserved.

NOTE: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT   )
OF AUSTRALIA  )
WESTERN AUSTRALIA         )
DISTRICT REGISTRY             )
GENERAL DIVISION             )                 No. WAG 115, 116 and 118 of 1990

B E T W E E N:  STATE OF WESTERN AUSTRALIA

Applicant

and

SOUTHERN EQUITIES      

CORPORATION LTD (IN LIQUIDATION)

First Respondent

and

WARDLEY AUSTRALIA LIMITED

Second Respondent

LAWRENCE ROBERT CONNELL

Third Respondent

WARDLEY AUSTRALIA    
  SECURITIES LIMITED

Fourth Respondent

ROTHWELLS LIMITED
  (In Liquidation)

Fifth Respondent

and

JAMES PHILLIP YONGE

Sixth Respondent

and

CROSS RESPONDENTS

CORAM:   FRENCH J.
DATE:     19 MAY 1997
PLACE:     PERTH

REASONS FOR DECISION ON SEPARATE HEARING
  OF CROSS CLAIMS AND OTHER ISSUES

The present litigation has been on foot for seven years.  Although it focuses upon the events of one weekend in October 1987, its progress to hearing has been stately.  This is in part attributable to concurrent criminal proceedings which have been concerned with events including some of those which are the subject of these proceedings and the vast array of documents which are said to bear upon the central questions of fact. 

The criminal proceedings have now concluded and interlocutory processes are substantially complete.  The case is likely to be listed for hearing later this year or early in 1998. On informal estimates thus far provided, it may take nine months to hear.  Final and considered estimates of the length of hearing have not yet been provided to the Court.  A question has been raised about the way in which the hearing should be conducted and, in particular, as the State submits, whether cross-claims against the former auditors of Rothwells should be heard separately from the main action.  There are also questions raised about the separate hearing of certain other issues.  These issues were raised at a case management conference on 14 February 1997 and subsequently in written submissions from the parties.  

The main thrust of the pleadings has been summarised in earlier rulings made in the course of these proceedings - Western Australia v. Bond Corporation Holdings Ltd (No.2) (1992) 37 FCR 150. There is no need to repeat that summary here. The primary question for consideration is whether the cross-claims against KMG Hungerfords should be heard at the same time as the principal action or separately.

Wardley's cross-claim against KMG Hungerfords relates to its Auditor's Report of August 1987 on the annual accounts of Rothwells for the year ended 31 July 1987.  It is alleged that contrary to statements contained in the Auditor's Report the annual accounts had not been prepared so as to give a true and fair picture of the state of affairs
of Rothwells for that year.  Hungerfords is also said to have impliedly represented the truth of statements in the accounts, which statements were false.  In so doing, it is said to have been negligent and in breach of its duty of care to Wardleys.  A plea of deceit is also raised in relation to the conduct of the auditor.  It is further pleaded that if the State has suffered loss and damage attributable to Wardleys, then Wardleys and Hungerfords are joint tortfeasors or have a co-ordinate liability to the State.  On these bases Wardley is said to be entitled to indemnity and contribution or contribution from Hungerfords.  In addition, Wardleys claims damages against Hungerfords for losses it sustained under an Underwriting Agreement with Rothwells made on 26 November 1997.  Under the agreement Wardleys was to underwrite the purchase of issued shares in Rothwells to the extent of $150 million. 

Yonge has a cross-claim in negligence and deceit against Hungerfords on questions similar to the primary questions in the Wardley's cross-claim.  Rothwells also has a cross-claim against Hungerfords.  It claims contribution if any of Wardleys, Yonge or Southern Equities makes out its causes of action in its cross-claim against Rothwells and Hungerfords.  This is on the basis that Hungerfords would be a joint tortfeasor or share a co-ordinate liability with Rothwells. 

Rothwells also claims against Hungerfords in contract and negligence in relation to the 1985, 1986 and 1987 Audit Reports. Claims are also made based upon s.52 of the Trade Practices Act 1974 in relation to the Audit Reports of those years.

The State contends that the hearing of the cross-claims against Hungerfords will involve questions other than those raised by the State in its claims or by the respondents to the State's claims on their inter partes cross-claims.

The proposal for the separate hearing of the Hungerfords' cross-claim is opposed by Wardleys and Yonge.  They make the point that there will be a substantial area of overlap between the State's claim and their own cross-claims on the issue of the financial position of Rothwells at the relevant time.  I agree.  While there are no doubt devices which could provide for the use of such evidence in subsequent hearings of the
cross-claim, it is preferable, in my opinion, that the claim and the cross-claims be heard together.  Acknowledging that there are aspects of the cross-claims not directly relevant to the State's case, I am not persuaded that the separation of the cross-claims is likely to lead to a more economic use of court time.  It does, in my opinion, also raise the spectre of further delays and the danger of inconsistent findings. 

That is not to say that the presentation of evidence in the case cannot be so managed as to allow for substantially discrete blocks of evidence to be identified and the participation of the parties be structured according to what is necessary to protect and advance their own interests.

Rothwells has also submitted that there should be heard and determined as separate issues in advance of the main proceedings the following questions:

1.The reasonableness of the State's settlement with the liquidators of Rothwells and the NBA.

2.The Rothwells double proof defence.

3.        Wardley's cross-claim as underwriter of the Rothwells' shares.

Rothwells contends, that the resolution of the first two of these matters adverse to the State would defeat the State's claim against it.  In my opinion, however, the need to address underlying factual issues and the overlap with issues germane to the claim as a whole is such that it would be dangerous to make determinations on evidence which it was sought to confine to each of those issues discretely.

In the circumstances, I propose to order that the claim be heard together with all cross-claims.  I will make no order in relation to the Rothwells' contention for separate hearings of the preliminary issues which it has identified.

I certify that this and the preceding
  three (3) pages are a true copy of the
  Reasons for Decision of His Honour
  Justice French:
  Associate:
  Date:

Counsel for the Applicant: Mr E. Heenan QC
Solicitors for the Applicant: State Crown Solicitor

Counsel for the Second and Fourth Respondents: Mr J. Chaney
Solicitors for the Second and Fourth Respondent: Minter Ellison Northmore Hale

Counsel for the Fifth Respondent:  Mr R. Douglas
Solicitors for the Fifth Respondent: Blake Dawson Waldron

Counsel for the Sixth Respondent: Mr G.R. Dean
Solicitors for the Sixth Respondent: Bennett & Co.

Counsel for KMG Hungerfords: Mr S. Penglis
Solicitors KMG Hungerfords: Freehill Hollingdale & Page

Date of Judgment: 19 May 1997