Wain v Drapac (No 3)
[2014] VSC 23
•11 February 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2010 01061
IN THE MATTER OF
ENDOLINE PTY LTD (ACN 051 437 499)
| ASHLEY JOHN WAIN & ORS | Plaintiffs |
| v | |
| MICHAEL JOHN DRAPAC & ORS | Defendants |
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JUDGE: | FERGUSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 10 February 2014 | |
DATE OF RULING: | 11 February 2014 | |
CASE MAY BE CITED AS: | Wain & Ors v Drapac & Ors (No 3) | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 23 | |
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COURTS – Judges – Reasonable apprehension of bias – Application for freezing order made against defendants – Defendant served affidavit in opposition on morning of first return of application – Plaintiffs did not press application on that occasion but instead sought to adjourn application and sought orders for further affidavit material to be filed by defendants as to assets – Orders made for further affidavit material to be filed and adjournment of application – Whether fair‑minded lay observer might reasonably apprehend that judge might not bring an impartial and unprejudiced mind to resolution of remaining issues in dispute in proceeding – Application refused.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr I G Waller SC with Mr H L Redd | Isakow Lawyers |
| For the Defendants | Mr R C Macaw QC with Dr A P Trichardt | B2B Lawyers |
HER HONOUR:
The defendants have made an application that I recuse myself from further hearing this proceeding on the basis of an apprehension of bias.
The test for determining whether there is an apprehension of bias is well known. As Gummow A‑CJ, Hayne, Crennan and Bell JJ said in Michael Wilson & Partners Ltd v Nicholls: [1]
the test to be applied in Australia in determining whether a judge is disqualified by reason of the appearance of bias (in this case, in the form of prejudgment) is whether a fair‑minded lay observer might reasonably apprehend that the judge might not bring an impartial and unprejudiced mind to the resolution of the question the judge is required to decide….
As the plurality in Johnson v Johnson explained, “[t]he hypothetical reasonable observer of the judge’s conduct is postulated in order to emphasise that the test is objective, is founded in the need for public confidence in the judiciary, and is not based purely upon the assessment by some judges of the capacity or performance of their colleagues”. Because the test is objective it is important to keep an inquiry about apprehension of bias distinct from any inquiry about actual bias. An inquiry about actual bias in the form of prejudgment would require assessment of the state of mind of the judge in question. No doubt that would have to be done, at least for the most part, on the basis of what the judge had said and done. But to allow an inquiry about whether the judge had in fact prejudged some issue to enter into a debate about what a fair‑minded lay observer might apprehend is to introduce considerations that are irrelevant to the issue that is to be decided when a party submits that there is or was a reasonable apprehension of bias.[2]
[1](2011) 244 CLR 427.
[2]Ibid [31]–[33] (citation omitted). See also Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337 [6]–[7]; Rouvenitis v Knoll [2013] NSWCA 24 [24].
In a later passage from the same case, their Honours said:
an allegation of apprehended bias requires an objective assessment of the connection between the facts and circumstances said to give rise to the apprehension and the asserted conclusion that the judge might not bring an impartial mind to bear upon the issues that are to be decided.[3]
[3]Michael Wilson & Partners Ltd v Nicholls (2011) 244 CLR 427 [67].
The present proceeding is, in broad terms, what might be described as an oppression claim.[4] In those types of cases, it is necessary for the Court to determine whether or not there has been oppressive conduct[5] and, if so, what relief should be granted. In the present proceeding, the trial as to whether or not there was oppressive conduct has been conducted and determined in favour of Mr Wain, Mr Murchie and the other plaintiffs in the proceeding. Following that part of the trial, orders were made, including orders that Michael Drapac, Briaroaks Pty Ltd and Endoline Pty Ltd (‘Drapac parties’) purchase the plaintiffs’ interests (‘2012 Orders’).[6] For example, Mr Drapac was ordered to purchase, at a value to be determined by the Court, Mr Wain and Mr Murchie’s shares in Endoline Pty Ltd.
[4]Corporations Act 2001 (Cth) ss 232(a),(e), 233 which provides for relief to be given where the conduct of a company’s affairs is oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member, whether in their capacity as a member or not.
[5]I use this phrase as a shorthand expression for the three terms ‘oppressive to, unfairly prejudicial to, or unfairly discriminatory against’.
[6]Orders made 1 June 2012, Wain & Ors v Drapac & Ors [2012] VSC 156.
The process for valuation of the plaintiffs’ interests is ongoing. As part of that process, orders were made as to the assumptions to be made in determining the fair value of the various shares and units to be purchased and other matters concerning the determination of fair value (‘2013 Orders’).[7] Orders were also made for discovery and other matters.
[7]Orders made 9 August 2013, Wain & Ors v Drapac & Ors (No. 2) [2013] VSC 381.
The defendants appealed from the 2012 Orders and sought leave to appeal from the 2013 Orders. The Court of Appeal dismissed both the appeal and the application for leave to appeal, without adjudication on the merits. The reason for this is that the defendants applied to set aside the 2012 Orders on the basis that the judgment is tainted by fraud. The Court of Appeal referred the question of fraud to the trial judge for determination.
Consequently, the matters remaining to be dealt with are the application to set aside the 2012 Orders and the determination of the fair value of the plaintiffs’ interests. Both matters are set down for trial commencing on 12 May 2014. The defendants submitted that findings as to credit will be critical.
The application for recusal arises out of what occurred in court on 20 December 2013. That was the return date for an application by the plaintiffs for freezing orders against the Drapac parties. In support of the application, Mr Wain deposed that he estimated that the value of the plaintiffs’ interests which are to be purchased by the Drapac parties is in the vicinity of $10 million. The Drapac parties opposed the application. Among other things, Mr Drapac deposed that:
There is no intention to attempt not to meet any judgment ordered by the Court. I have the capacity to meet and will meet any order against me and will ensure that both Briaroaks and Endoline will do the same.[8]
[8]Affidavit of Michael John Drapac sworn 19 December 2013, paragraph 18(c).
At the commencement of his affidavit, Mr Drapac deposed that he was in Los Angeles and would deal as best as he could with the allegations made in Mr Wain’s affidavit on short notice. Among other things he deposed that his interest in the Drapac Group is worth more than $32 million.[9]
[9]Ibid [10]. The passages from his affidavit that deal with his assets are set out in the Annexure to these reasons.
Mr Drapac’s affidavit was served on the morning of the hearing. When the matter came on, I informed Senior Counsel for the plaintiffs that I had quickly glanced at the affidavit and that it seemed to go to the issue of funds available to meet the judgment and an intention not to disperse them. The question of whether the plaintiffs wished to proceed with their application for freezing orders was raised. Senior Counsel referred to paragraph 18 of Mr Drapac’s affidavit, which I have set out above. The following exchange occurred:
MR WALLER: We do have the statement for the first time on oath, but being sceptical, we wonder what the value of that statement is, if events turn out to be otherwise - - -
HER HONOUR: Mr Waller, having dealt with this matter now for quite a long time and seeing how the parties have approached it and the antagonism between them and how bitterly it has been contested, I can well understand why your clients would have concern and apprehension, but one difficulty I see is in view of that statement, it's a statement on oath by Mr Drapac who is — if he walked away from that statement now, there would be all sorts of ramifications for him, both legally and, I would have thought, professionally, and the court would have to be satisfied that there's a real risk — I accept that doesn't have to be more than 50 per cent and it's all of those things, but faced with this affidavit, I think that it's going to be more difficult and I can understand why your clients might say he ought not be trusted.
They're looking at it from their perspective, I completely understand that, and given the history and the bitter history between the parties, but the court being in the impartial position and looking at the material, I'm not, at the moment, sure that I would be able to reach the view that I would need to reach to make the orders in light of this affidavit.
Following this, the matter was stood down for a short time for Senior Counsel to take instructions. Upon the matter resuming, Senior Counsel for the plaintiffs indicated that he had had an opportunity to read Mr Drapac’s affidavit more closely and to take instructions. Counsel said that the plaintiffs would not press for freezing orders against the Drapac parties that day but instead sought orders that the Drapac parties provide an affidavit of their assets in Australia giving their value, location and details including any encumbrances to which they are subject. Counsel said that the orders were sought because as Mr Drapac had stated in his affidavit, he was then in Los Angeles and he had dealt with the matter as best he could on short notice. Counsel submitted that it appeared from Mr Drapac’s affidavit that while he had said something about his own personal assets, the affidavit was in no way comprehensive and he had said very little if anything about the asset position of Endoline and Briaroaks. The plaintiffs also sought orders for the application to be adjourned to a date after that additional affidavit material was filed.
Senior Counsel for the Drapac parties submitted that the application should be dismissed and that an order for the further affidavit material was not appropriate unless there was a reasonable prospect of a freezing order being made or if one had been made on an interim basis. In the present case, counsel submitted that there should be no orders for further affidavits because there was nothing to which they could properly be said to attach.
In reply, Senior Counsel for the plaintiffs referred the Court to r 37A.03 of the Supreme Court (General Civil Procedure) Rules 2005 which is in the following terms:
(1)The Court may make an order (an ancillary order) ancillary to a freezing order or prospective freezing order as the Court considers appropriate.
(2)Without limiting the generality of paragraph (1), an ancillary order may be made for either or both of the following purposes—
(a)eliciting information relating to assets relevant to the freezing order or prospective freezing order;
(b)determining whether the freezing order should be made.
Having referred to this rule, counsel submitted that it envisages a staged process in some circumstances whereby an ancillary order can be made in relation to the discovery of assets which will inform the parties and the Court as to whether ultimately a freezing order should be made. Counsel continued:
That's why we want the summons adjourned because, Your Honour, the picture of the assets at present is incomplete and while we accept the question of risk is diminished in light of this affidavit, we say until we have a complete picture of the asset position which will allow us to examine the value of statements made by Mr Drapac for instance in 18C, the prospect of a freezing order is still there, so we would press for the ancillary order and if Your Honour needs a basis, we would say it's available under 37A.03 for the reasons I have explained.
Following this, counsel made short submissions about other matters, and then I said:
I do propose to make the orders that are sought by the plaintiffs in respect of the provision of what I'll call financial information in the form of an ancillary order relying on Rule 37A.03… and I will also adjourn the application.
The freezing order application was adjourned to 10 February 2013.
On this application, the Drapac parties submitted that the submission set out in [14] above was to the effect that the statement on oath by Mr Drapac of his intention and capacity to meet any judgment and the value of assets that would enable him to do so, should not be accepted. They submitted that the practical effect of the orders was to place an onerous further obligation on the Drapac parties and to preserve the ability of the plaintiffs to pursue their freezing order application should the further affidavit material undermine the effect of Mr Drapac’s affidavit. They submitted that a fair‑minded lay observer might reasonably apprehend that there is a possibility that I might not bring an impartial and unprejudiced mind to the resolution of the remaining disputes in the proceeding for the following reasons:
(a)that observer would regard the orders on 20 December 2013 as onerous and not justified in light of Mr Drapac’s affidavit;
(b)in the absence of reasons for the decision to make the orders, the observer might conclude that I had accepted the reply submission of the plaintiffs and thought there was a reason to doubt Mr Drapac’s affidavit. In consequence, the observer might reasonably apprehend that I would not bring an impartial and unprejudiced mind to the resolution of the various credit and factual issues remaining in the proceeding;
(c)alternatively, the fair‑minded lay observer might reasonably apprehend that the decision was inexplicable and, accordingly, capricious or arbitrary such that the Drapac parties might not receive the benefit of an impartial and unprejudiced approach to the resolution of the remaining issues in the proceeding.
Senior Counsel for the defendants submitted that the prefatory statement by Mr Drapac about dealing as best as he could with the allegations made against him by Mr Wain was a statement only about dealing with the allegations concerning impropriety and had nothing to do with his ability to provide information about his financial position. Counsel contended that Mr Drapac had given ‘chapter and verse’ about his assets in his affidavit and that he has sworn on oath that he would stand behind Endoline and Briaroaks. Consequently, counsel submitted that there was no basis for the making of the orders for further affidavit material, particularly not against Mr Drapac. Counsel contended that the fair‑minded lay observer would not conclude that all that happened was that the Court was satisfied that it was appropriate to make the orders in circumstances where counsel for the plaintiffs had submitted that the picture of the assets disclosed in Mr Drapac’s affidavit was incomplete. Counsel submitted that this was so for two reasons. First, because it ignored the submission about ‘the value of statements made by Mr Drapac’ and secondly, because it would involve accepting a nonsense as Mr Drapac’s affidavit set out sufficient information and there was no need for him to provide further evidence about more assets. Counsel contended that in making the orders the Court was required to consider different versions of the events and determining that issue was dependent upon whether or not Mr Drapac was to be believed.
I do not agree with the defendants that the making of the orders for affidavit material and adjourning the application without detailed reasons would lead the fair‑minded lay observer to conclude that I would not bring an impartial mind to bear upon the remaining issues in the proceeding. The fair‑minded lay observer would have the benefit of having heard the whole of what transpired on 20 December 2013 — not just the aspects of that hearing upon which the Drapac parties’ submissions focussed. Those submissions were predicated on an assumption that there was no doubt about the adequacy of the information which Mr Drapac had provided in his affidavit and that the Court’s orders were made only taking account of the last submission made, rather than the whole of the submissions of both the plaintiffs and the defendants. The defendants’ argument rested on the fair‑minded lay observer proceeding on those bases and I do not think that such a person would do so. Rather, the fair‑minded observer would have noted that the adequacy or completeness of information was in issue. In my view, the fair‑minded lay observer would take into account that:
(a)an application for a freezing order was before the Court. The application was part heard such that it would be inadvisable for the judge to express any concluded view about the affidavit evidence — no finding of credit was made nor required, nor was the application determined;
(b)the plaintiffs’ submissions included submissions that Mr Drapac’s affidavit was incomplete, particularly in regard to the asset position of Briaroaks and Endoline (both of which have been ordered to purchase shares and units different from those Mr Drapac has been ordered to purchase);
(c)Mr Drapac had said in his affidavit that he had of necessity had to respond to the application when he was overseas and had only a very short time to respond and he had not indicated that this limitation was not applicable to that part of his affidavit dealing with assets;
(d)the judge was alive to the bitter history between the parties and that the Court must be in an impartial position;[10]
(e)the orders were part of facilitating the resolution of the application based on more fulsome material;
(f)it would be rare for detailed reasons to be given where orders are made for the filing of further affidavit material before determination of an application;
(g)no request for reasons was made by Senior Counsel for the Drapac parties either at the hearing or subsequently.
[10]See [10] above.
The Drapac parties’ submissions are more in the nature of a complaint that the orders were made in error.[11] Assuming for the purposes of this application that that is so, it does not demonstrate prejudgment.[12]
[11]There has been no appeal from the orders made and Mr Drapac has filed a further affidavit in compliance with them.
[12]Michael Wilson & Partners Ltd v Nicholls (2011) 244 CLR 427 [67], [116].
The application will be dismissed.
Annexure
Passages from the affidavit of Michael John Drapac sworn 19 December 2013:
7.I am the sole proprietor of the Hurstbridge property referred to in paragraph 11 of the Wain Affidavit. Since Mr Wain has not attached the title search in respect of the said property I do so. Now shown to me and marked MJD2, is a copy of a title search in respect of the said Hurstbridge property, being Lot 1 on Title Plan 757898J (formerly known as part of Crown Allotment 13A Section A Parish of Greensborough, Vol 01172 Fol 381 dated 17 December 2013. Although I am the sole proprietor, Quigil Pty Ltd has a 12% interest in the Hurstbridge property and Drapac Developments an 88% interest. I believe that the plaintiffs have been informed that the value of the Hurstbridge property is between $2m and $3m. I have no intention to sell the Hurstbridge property. The Hurstbridge property is unencumbered.
8.I have no intention of selling my property at Drummond Street, Carlton, referred to in paragraph 10 of the Wain Affidavit.
9.My financial interests are extensive. For example, I have established two Australian registered managed investment schemes which have acquired extensive property holdings as set out in paragraph 22 below. My interest is held through Drapac International Trust No 1. I have no intention to sell the units in Drapac Stars and Stripes 1 and Drapac Stars and Stripes 2, and I expect both schemes to do well.
10.I note that while I do not agree with Mr Wain's assertions as to the value of the plaintiffs' interests in the Drapac Group as set out in paragraph 5 of the Wain Affidavit, if those values are adopted (and assuming the judgment in the liability proceeding is not set aside), then on that basis my 78% of the Drapac Group is valued at $32,023,790.
22.I have established two Australian based managed investment schemes called Stars and Stripes 1 and Stars and Stripes 2, which have many millions of dollars of external investors and which have acquired numerous properties in the United States. I personally hold a substantial interest in each such scheme which I hold via a discretionary trust, Drapac International Trust No 1. I am the holder of six million units in the scheme. The face value of each unit is $1, but the value of the assets in the schemes is well more than the face value of the units. If I default in making any property acquisition in the United States, the effect on those schemes and the Australian investors in them will be severe.
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