Vantage Holdings Group Pty Ltd v Donnelly [No 2] - [2018] WASC 43

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: VANTAGE HOLDINGS GROUP PTY LTD -v- DONNELLY [No 2] [2018] WASC 43

CORAM: CHANEY J

HEARD: 11 JANUARY 2018

DELIVERED : 12 FEBRUARY 2018

FILE NO/S: CIV 1086 of 2016

BETWEEN: VANTAGE HOLDINGS GROUP PTY LTD
First Plaintiff
RELIANCE FRANCHISE PARTNERS PTY LTD
Second Plaintiff
AUSTRALIAN RELIANCE PTY LTD
Third Plaintiff
AUSTRALIAN RELIANCE GROUP PTY LTD
Fourth Plaintiff
AND
ANDREW PAUL DONNELLY
First Defendant
KIMBERLEY JAMES HANSON
Second Defendant
HAWKSTONE GROUP PTY LTD
Third Defendant
INSUBI PTY LTD
Fourth Defendant
PA AUDIT PTY LTD
Fifth Defendant
MARK ANTHONY ENGLISH
Sixth Defendant
DFK PA PARTNERS PTY LTD
Seventh Defendant

Catchwords:

Practice and procedure - Consolidation of actions - Transfer of proceedings in Magistrates Court - Partial transfer - Turns on own facts

Legislation:

Nil

Result:

Application for consolidation dismissed
Orders for partial transfer of Magistrates Court proceedings

Category: B

Representation:

Counsel:

First Plaintiff                  :     Mr M L Bennett
Second Plaintiff             :     Mr M L Bennett
Third Plaintiff                :     Mr M L Bennett
Fourth Plaintiff              :     Mr M L Bennett
First Defendant              :     Mr P J Tydde
Second Defendant         :     Mr S J Lemonis
Third Defendant            :     Mr N W Kalmund
Fourth Defendant           :     Mr P J Tydde
Fifth Defendant              :     Mr J R Ludlow
Sixth Defendant             :     Mr J R Ludlow
Seventh Defendant         :     Mr J R Ludlow

Solicitors:

First Plaintiff                  :     Bennett + Co
Second Plaintiff             :     Bennett + Co
Third Plaintiff                :     Bennett + Co
Fourth Plaintiff              :     Bennett + Co
First Defendant              :     Gilbert + Tobin
Second Defendant         :     Lemonis & Tantiprasut Lawyers
Third Defendant            :     Hotchkin Hanly Lawyers
Fourth Defendant           :     Gilbert + Tobin
Fifth Defendant              :     HWL Ebsworth Lawyers
Sixth Defendant             :     HWL Ebsworth Lawyers
Seventh Defendant         :     HWL Ebsworth Lawyers

Case(s) referred to in judgment(s):

Cameron v McBain [1948] VLR 245; [1948] 2 ALR 29
Lois Nominees Pty Ltd v QBE Insurance (Australia) Ltd [2011] WASC 208; (2011) 42 WAR 75
Saker v Creative Land Management Pty Ltd [2000] WASC 44

CHANEY J: Two applications came before me for hearing on 11 January 2018. One was an application (consolidation application) by the plaintiffs seeking an order consolidating this action (main action) with another action, being CIV 1911 of 2017 (Victorian action). The second was an application to transfer proceedings PER/GCLM/9466/16 from the Perth Registry of the Magistrates Court (Magistrates Court proceedings) to this court and to consolidate the Magistrates Court proceedings with this action (transfer application).
The transfer application was largely resolved by consent but one aspect of it remained in contention. It is convenient to deal first with the consolidation application. To do so, it is necessary to briefly review the issues arising in the main action and in the Victorian action.

The main action

The main action was commenced in January 2016, initially between Vantage Holdings Group Pty Ltd (VHG), Reliance Franchise Partners Pty Ltd (Reliance Franchise Partners) and Australian Reliance Pty Ltd (Australian Reliance), as first, second and third plaintiffs respectively, and Andrew Paul Donnelly and Kimberley James Hanson as first and second defendants. In its original form, the action concerned alleged misapplications of trust funds by the first and second defendants. In April 2016, leave was granted to join Australian Reliance Group Pty Ltd (ARG) as fourth plaintiff. By orders dated 22 December 2016, Hawkstone Group Pty Ltd (Hawkstone) and Insubi Pty Ltd (Insubi) were joined as third and fourth defendants respectively. On 27 September 2017, orders were made joining PA Audit Pty Ltd (PA Audit), Mark Anthony English and DFK PA Partners Pty Ltd (DFK) as fifth, sixth and seventh defendants respectively.
The statement of claim has been amended a number of times. The most recent version is dated 12 May 2017. It does not yet incorporate the claims against the fifth, sixth and seventh defendants. The current statement of claim extends to 48 pages. It makes various claims against Mr Donnelly and Mr Hanson for alleged breaches of duties to various of the second, third and fourth plaintiffs as either directors or officers of those plaintiffs. It continues to make a claim, albeit in a somewhat expanded form, in respect of alleged misappropriations of trust funds held by Australian Reliance and Reliance Franchise Partners. It asserts that Mr Donnelly and Mr Hanson breached duties as directors or officers of each of the plaintiffs at common law and under statute by reason of the alleged trust fund defalcations as and from April 2014. It asserts that, to the extent that trust funds were transferred ultimately to Mr Donnelly, Mr Hanson, Hawkstone, Insubi or other named entities, those persons received the funds knowing of the alleged breaches of trust. Compensation is sought from those four defendants.
The plaintiffs also plead that Mr Donnelly and Mr Hanson breached various directors' or officers' duties in relation to transactions relating to a restructure of a company called Steadfast Group Ltd (Steadfast) in or around July 2013, in that they procured an allotment of shares from Steadfast to Hawkstone rather than to Australian Reliance which was entitled to the allotment. They allege that Hawkstone has since sold the Steadfast shares at a profit and that Mr Hanson and Mr Donnelly thereby breached their various duties to Australian Reliance as directors or officers. The plaintiffs claim that Hawkstone was involved in those contraventions and is liable to account for its profit. Further, it is claimed that Mr Donnelly, Mr Hanson and Hawkstone are liable to Australian Reliance for damages.
A further claim is made in relation to transactions undertaken by Mr Donnelly and Mr Hanson in relation to a company called Austin Financial Services Pty Ltd (Austin) in the financial year ending 30 June 2011, which is said to amount to a misappropriation of funds of ARG for which they are liable in damages. A further claim is made in relation to a deed of release entered into upon termination of employment by ARG of a Mr Sneddon which is said to have been entered into in order to avoid disclosure of defalcation of trust funds. The entry into the deed of release is said to have been a breach of various duties on the part of Mr Donnelly and Mr Hanson, leading to losses being suffered by ARG.
A further claim is said to arise as a result of lease payments being made on behalf of Hawkstone by Australian Reliance between June 2012 and December 2015 which is said to have caused Australian Reliance loss. It is claimed that Hawkstone knowingly received the benefit of those lease payments. A further claim is made in relation to a loan recorded as having been made by Australian Reliance in July 2012 to Insubi which is said to have been made in circumstances amounting to a breach of duty by Mr Donnelly and Mr Hanson giving rise to a liability on their part for damages, an account of profits and compensation.
Defences have been filed by the first, second, third and fourth defendants. I was advised at the hearing of this application that Insubi, the fourth defendant, has since become deregistered.
In addition to the defences, Hawkstone has lodged a counterclaim. The counterclaim alleges that between 2011 and 30 June 2014, Hawkstone entered into a loan agreement with VHG pursuant to which Hawkstone paid various expenses on behalf of VHG. Hawkstone contends that VHG is indebted to it in the sum of $399,741.77 pursuant to the loan agreement, or alternatively is liable to make restitution in that sum. Hawkstone also claims that it entered into a loan agreement with Reliance Franchise Partners pursuant to which it lent Reliance Franchise Partners $540,000 in November 2014, and seeks repayment of that sum.
A further claim is made that Hawkstone is entitled to repayment of funds pursuant to a loan agreement made between January 2015 and June 2015 relating to dealings between Reliance Franchise Partners and a company, FYB Insurance Pty Ltd. The debt is said to amount to $1,033,699.85. An alternative claim in restitution is also pleaded. The counterclaim also claims money said to be payable by ARG to Hawkstone pursuant to a management and services agreement made in late 2011 or early 2012, giving rise to a liability by ARG to Hawkstone of at least $1,807,008.25. The counterclaim seeks judgment for the various amounts said to be owing by VHG, Reliance Franchise Partners and ARG respectively.
It can be noted that although the prayer for relief in the statement of claim refers to relief sought by the 'plaintiffs', no cause of action in favour of VHG is pleaded in the statement of claim. It appears that it remains a party to the proceedings only because it is now a defendant by counterclaim.
As I have noted, there is as yet no pleading in this action against the fifth, sixth and seventh defendants who I gather are the accountants and auditors of the plaintiff companies. There is an application on foot by the plaintiffs for discovery against those defendants prior to the plaintiffs being required to plead. Programming orders have been made in relation to that application.
The plaintiffs have also instituted an application to strike out numerous paragraphs of Hawkstone's counterclaim. That application is also the subject of programming orders. In an affidavit affirmed in support of the consolidation application, Mr Alexander James Tharby, a legal practitioner employed by the plaintiffs' solicitors, referred to the plaintiffs' intention to apply to strike out parts of Hawkstone's amended defence and counterclaim. He indicated that, assuming Hawkstone maintains the claims made in its counterclaim, the plaintiffs in this action presently intend to plead 'among other things' that if VHG borrowed funds from Hawkstone, then Mr Donnelly and Mr Hanson breached their directors' and officers' duties owing to VHG in causing or permitting VHG to do so and a denial that the 'management and services agreement' was validly executed or was ever implemented. That latter contention is said to be based in part on statements made at a meeting of the VHG board held on 17 August 2015. As will be seen, that meeting is significant in relation to the issues arising in the Victorian action.

The Victorian action

The Victorian action was originally commenced in the Supreme Court of Victoria. There were originally six plaintiffs and two defendants. The two defendants were Reliance Online Pty Ltd (Reliance Online) and VHG. On 3 November 2016, a confidential settlement agreement was reached between the plaintiffs and the defendants in the Victorian action which resulted in the proceedings between the plaintiffs and the defendants being struck out. The defendants had, however, commenced third party proceedings against Mr Donnelly, Mr Hanson and a company, Amicus Legal Pty Ltd (Amicus Legal). The third party proceeding against Amicus Legal was struck out on 27 April 2017. All that then remained of the Victorian action was the third party proceeding between Reliance Online and VHG on the one hand, and Mr Donnelly and Mr Hanson on the other.
In an affidavit of Clara Elisabeth Hagan sworn 13 October 2017 in favour of the consolidation application, Ms Hagan summarised the third party pleadings in the Victorian action as involving claims by Reliance Online and VHG against Mr Donnelly and Mr Hanson in relation to the purported purchase by Reliance Online of the 'Phil Doring Insurance Brokers' business, purportedly guaranteed by VHG in November 2015. Reliance Online and VHG claim that Mr Donnelly's and Mr Hanson's conduct in signing a purchase and guarantee document was in breach of their duties as directors, 'especially given the conduct was contrary to an express resolution of the board of directors of VHG on 17 August 2015'. The amount of the loss claimed has been particularised at approximately $320,000.
On 10 May 2017, the Supreme Court of Victoria made orders transferring the Victorian action to this court.

The consolidation application

The consolidation application is made pursuant to O 83 of the Rules of the Supreme Court 1971 (WA). Order 83 r 1 provides:
Whenever any issues between the same parties can be conveniently tried together, or whenever it appears desirable notwithstanding that the parties are not identical and that the evidence necessary to prove the issues is not identical, the Court may consolidate any number of causes or matters in order to quiet all claims relating to one subject matter, transaction or event, or to substantially similar subject matters, transactions or events.
Whether consolidation of two or more actions should be ordered depends on the particular facts and circumstances of each case.[1] In Lois Nominees Pty Ltd v QBE Insurance (Australia) Ltd, Beech J identified as matters that may be relevant to the exercise of discretion regarding consolidation:
(1)whether it is convenient to consolidate the actions, including whether it will prevent multiplicity of actions and ensure savings of time and cost;
(2)whether there are common questions of law or fact or a common transaction or series of transactions;
(3)whether consolidation will cause prejudice or unfairness to any parties;
(4)whether consolidation will be conducive to a just resolution of the issues; and
(5)whether there are any practical matters which may make it inexpedient to consolidate.[2]
[1] Cameron v McBain [1948] VLR 245; [1948] 2 ALR 29; Lois Nominees Pty Ltd v QBE Insurance (Australia) Ltd [2011] WASC 208; (2011) 42 WAR 75 [78].
[2] Lois Nominees v QBE Insurance [81]; Saker v Creative Land Management Pty Ltd [2000] WASC 44 [2], [3].
The plaintiffs contend that consolidation should be ordered because there is a common substratum of facts and underlying evidence in each of the two cases. They contend that both proceedings arise from Mr Donnelly's and Mr Hanson's conduct in their role as directors or officers, generally over the same time period, of VHG and its subsidiaries. They contend that the meeting of the VHG board on 17 August 2015 will be the subject of evidence in both proceedings. In relation to the Victorian action, it is pleaded that a resolution was passed at that meeting containing a direction to Mr Hanson and Mr Donnelly which was breached by the entry into the agreement for Reliance Online to purchase the Phil Doring Insurance Brokers business. In the main action, evidence of that meeting is likely to be given in relation to a decision by the board of VHG to undertake certain enquiries regarding the possible misappropriation of trust funds.
The plaintiffs also contend that the issues as to the duties owed by Mr Donnelly and Mr Hanson as directors or officers of the various companies will involve an examination of common background circumstances in each case. It was submitted that the commonality of underlying evidentiary matters will become more evident upon the anticipated future amendments to the pleadings in response to the Hawkstone counterclaim once the strikeout application in relation to the counterclaim is dealt with.
The plaintiffs also assert that the history of defaults on the trust account is relevant to the assessment, for the purposes of the Victorian action, of the nature and extent of the duties owed by Mr Hanson and Mr Donnelly to various companies in the VHG group, including Australian Reliance and Reliance Online.
There are a number of reasons why I do not consider that it is appropriate that consolidation should be ordered, at least on the basis of the current pleadings. Those reasons are:
(1)The issues in the Victorian action involve a discrete transaction which, other than involving allegations in relation to Mr Donnelly's and Mr Hanson's duties in relation to the VHG group of companies, does not appear to have any factual overlap with the numerous issues in the main action.
(2)Reliance Online is not a party to the main action.
(3)Despite the multiple amendments to the statement of claim and the addition of new parties in the main action, the issues to be litigated remain far from settled. There is as yet no pleading against the fifth, sixth and seventh defendants. The counterclaim by Hawkstone is the subject of a strikeout application. There is no defence to the counterclaim filed.
(4)It is inappropriate to order consolidation on the basis of the matters that are 'among other things' foreshadowed by the plaintiffs' solicitors to be likely subjects of future pleadings. The application should be determined on the basis of the pleadings as they stand.
(5)Although both actions involve pleadings as to the existence of duties on the part of Mr Donnelly and Mr Hanson as directors or officers, the breaches alleged relate to duties owed to different companies at different times and involve different conduct.
(6)Hawkstone, PA Audit, Mr English and DFK are not parties to the Victorian action. The main action is already a complex one involving multiple issues. It would be prejudicial to those defendants to be subjected to additional complication by the introduction of an additional claim in respect of which they have no involvement.
(7)The Victorian action is far further advanced than the main action. It is a relatively small claim which may well be sensibly settled before trial. I was informed from the bar table that it is expected the main action is unlikely to come to trial within the next 18 months, whereas the Victorian action could be ready for trial in a much shorter time. Mr Donnelly and Mr Hanson contend that they should be entitled to have the Victorian action resolved in a timely way, and that they would be prejudiced by a delay in having that matter resolved. I accept that contention.
(8)I am not persuaded that there is any substantial saving in time or costs in having the two matters consolidated. Ms Hagan deposed that the plaintiffs' counsel's best estimate, having regard to the estimates of the solicitors for the defendants, was that if the actions were not consolidated, the main action would likely take between 10 to 15 days, and the trial of the Victorian action would likely take between 4 to 5 days. If proceedings are consolidated, counsel estimated that the trial is likely to take between 13 to 18 days. Those estimates do not support any reliable concession that any significant saving of time might be achieved.
In summary, I am not satisfied that there is sufficient commonality of questions of law or fact to warrant consolidation; I consider consolidation would be prejudicial and unfair to those parties who are not parties to the Victorian action; no significant saving of time or costs is demonstrated; and it is inexpedient to consolidate actions where they are at very different stages of readiness for trial, and the pleadings in one, and therefore the issues involved, are far from settled. In the circumstances, the application for consolidation is dismissed.

The transfer application

The Magistrates Court proceedings involve a claim by Diners Club Pty Ltd (Diners Club) against Mr Hanson. Diners Club claims repayment of an amount said to be due pursuant to a financial facility provided by the issue of a Diners Club card to Mr Hanson, pursuant to an agreement made on or about 1 September 1978. The claim is for an amount of $65,432.21 together with interest and charges. There is an alternative claim for restitution of the sum of $58,784.91, said to be the benefit conferred on Mr Hanson by the use of his Diners Club card.

In his defence, Mr Hanson denies all of the allegations in Diners Club's statement of claim, including that he made any agreement with Diners Club. In a section of the form of defence which requires identification of anyone whom the defendant alleges is liable for the claim, Mr Hanson identifies Australian Reliance as being liable on the grounds that the Diners Club account the subject of proceedings was used to pay Australian Reliance's rent for offices in Sydney to the extent of the sum of $44,796.27.
Mr Hanson issued a third party notice in the Magistrates Court proceedings against Australian Reliance. In the summary of facts upon which the third party claim is based, Mr Hanson pleads an implied agreement made between Australian Reliance and himself that Australian Reliance would reimburse him for the payments made in relation to rent due by Australian Reliance or alternatively (in par 5(b) of the Third Party Statement of Claim) that he is entitled to restitution of the amounts so paid.
In its defence to the third party notice, Australian Reliance does not admit the payments made on its behalf, and denies the existence of an implied agreement or any entitlement to restitution. In par 5 of its statement of defence, Australian Reliance pleads:
5.The Third Party denies paragraph 5 of the Third Party Claim and says that:
(a)the Third Party was not liable for the credit card, nor charges made to the credit card, the subject of these proceedings;
(b)on the facts alleged in the Third Party Claim, no agreement is capable of arising;
(c)Ms Jowett‑Blinman was not authorised to make any agreement on behalf of the Third Party with the Defendant, to the knowledge of the Defendant (which knowledge is to be inferred from alternatively imputed by his position as a director of the Third Party at the relevant time);
(d)if, which is denied, the Third Party is liable to the Defendant, the Third Party has claims against the Defendant the subject of proceedings in the Supreme Court of Western Australia (being proceedings CIV 1086 of 2016) (Supreme Court Proceedings), which claims are of a greater quantum than the Third Party Claim and provide the Third Party with a complete defence of set‑off;
(e)if, which is not admitted, the Defendant is entitled to bring a claim for restitution in the Magistrates Court, the Defendant is to be denied relief as he does not come to equity with clean hands, and the Third Party relies on the Defendant's conduct alleged in the Supreme Court Proceedings in that regard.
By its chamber summons filed on 11 July 2017, Australian Reliance sought orders that the Magistrates Court proceedings be transferred to this court or alternatively that the third party claim brought in the Magistrates Court be transferred, and that the Magistrates Court proceedings or alternatively the third party claim in that proceeding, be consolidated with the main action. Alternatively, it sought that the Magistrates Court proceedings be case‑managed together with the main action in this court.
By the time the matter came on for hearing, Diners Club and Australian Reliance had reached agreement that there should be orders dismissing the application for transfer and for consolidation of the Magistrates Court proceedings with the main action and the application for an alternative order for case management of the two actions together. They agreed that the Magistrates Court proceedings should be referred back to the Magistrates Court. That left as the only issue Australian Reliance's alternative order sought, being that the third party claim brought in the Magistrates Court be transferred to this court.
In the course of submissions, it was accepted by all parties that Mr Hanson's claim for restitution, the defence of set‑off in par 5(d) of Australian Reliance's defence and the defence of clean hands in par 5(e) should appropriately be transferred from the Magistrates Court to this court, if an undertaking by Mr Hanson was provided to this court to the effect that he would not move for judgment on the third party claim in the Magistrates Court until determination at first instance of the main action in this court. That would leave with the Magistrates Court the third party claim based on implied agreement, and Australian Reliance's defence to that implied agreement claim. Subsequent to the hearing, Mr Hanson's solicitors provided the following undertaking on behalf of Mr Hanson:
If his Honour ordered the transfer from the Magistrates Court to the Supreme Court of:
1.the claim made at paragraph 5(b) of Mr Hanson's statement of general procedure third party claim in the Magistrates Court proceedings; and
2.the defences at paragraphs 5(d) and (e) of Australian Reliance Pty Ltd's statement of defence to general procedure third party claim;
Mr Hanson undertakes not to move for judgment on the third party claim until the determination at first instance of Supreme Court proceedings CIV 1086 of 2016.
The provision of that undertaking and the partial transfer of the third party proceedings solves any question of doubt as to the Magistrates Court's jurisdiction to deal with the restitution claim and the defences of set‑off and clean hands, and avoids the prospect of the matters the subject of the main action being litigated in the Magistrates Court in the context of the set‑off and clean hands defences. For those reasons, it is appropriate that there be an order that pursuant to s 39 of the Magistrates Court Act 2004 (WA), the claim made at par 5(b) of Mr Hanson's statement of general procedure third party claim in the Magistrates Court proceedings, and the defences at pars 5(d) and (e) of Australian Reliance's statement of defence to general procedure third party claim, be transferred to this court to be case‑managed with the main action. As a matter of procedure, the transfer should be effected by the Magistrates Court referring to this court a copy of the third party claim and the statement of defence, to be marked with a separate action number by this court. The Magistrates Court should otherwise retain its file.