Qa oe eee wot tee ~~ CATCHHORDS Stacemenk of Claim - whether a cause of actia eflewents constituting involvement within the meaning of s.7TR of the Trade Practices Act 1974 - whether those elements were diecliosed by pleadings aqainst certain appellants - meaning of ""eausing" a representation to be made or an agreement to be enrered into ox completed - whether the cespondent comeany conid be misled when the mind of the compeny was the wind of wD directors alleged to ha involved in the misleadine and deceptive conduct, Serurity for casts - whether the Federal Court had jurisd ?ckion te exercise the discretion contained in 5.533 Companies Act 1981 (Vic.}) - Factors taken into account veyaht to be attributed te certain factors - the issue of the 0D respondent company suing for benefit of another within the context of both 0.28 £.3(1)(6) and 5.5323 of the Companies Act 1981 (Vaic.). Appeal - principles to be applied in an appeal from an exercise of a discretion by the primary qudjqge ona matter ot practice and procedure, Trade Practices Act 1974 - ss.52, 75B. Companies Act 1981 (Vie.) - 5.533 Federal Court Pules - 0.28 r.3(1)1b) seer meres comers were a Qe ca ee: ate oe was e Petar - 5 a re ee ee meee - ea EDWARD CHRISTIAAN SENT & ANOR v. JET CORPORATION OF AUSTPALIA PTY. LTD. (VG NO. 226 OF 1983) PETFES FY. LTD. & ORS. v. JET CORPOPATION OF AUSTRALTA PTY, ' LID. (VG NO. 227 OF 1983) JOHN BARRY COLLIER & ANOR v. JET CORPORATION OF AUSTRALIA PTY. LTD. (VG NO. 236 OF 1983) Smithers, Sweenev & McGregor JJ. Melbourne. ae rare See eee te eed an ohne net athe hae Ri ou no niteltee aturre citemehe nar eet athe Srp pears ae rormeermaanererernemys 61 pee mene gery new mF A ee fete ce enna ee ven mote ae eit A me ae -- - Ralydn Weed eredae Blew tem salt Mena deat ee ane 8 ars Me es Pte | J IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISTON VG Nos. 226,227 & 230 of ww eww ON APPEAL FROM THE HON. MR. JUSTICE NORTHROP IN PROCEEDING NO. VG 109 OF 1993 VG No. 226 of 1983 Betweens EDWARD CHRISTIAAN SENT and BRIAN FORSHAW (Appellants) And: JET CORPORATION OF AUSTRALIA PTY. UTD. (Respondent ) VG No. 227 of 1983 Between: PETRES PTY. LTD.. DIPSON PTY. LTD. , WESTWIND JET CORPOVATION PTY. LTD... TREVOR BURTON HUTTLEY, JON DEaN WILSON, SCAPELA IRA NOMINEES PTY. LTD., and ROVOIL PTY. LTD. (Appellants) And: JET CORPORATION OF AUSTRALIA pry. LTD. (Respondent) VG No. 230 of 1983 Between: JOHN BARRY COLLIER and LINDSAY QUENTIN HOGG (Appellants) es 'A. JET CORPORATION OF AUSTRALIA Pry. LTD. | (Respondent) IIR eT ene tenn en Senn ent ene Ire eet eet we 8 ee man ene re te eee a) ten oon wreen aatee Judges Making Order: Smithers, Sweeney and McGregor dd. Date of Order: 6 July 1984 Where Made: Melbourne. ORDER THE COURT ORDERS THAT: on . The appeals of the appellant parties are allowed with costs of and incidental to their relevant motions. Leave is granted to Jet Corporation te amend the Statement of Claim if so advised. Leave 15 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. IT np pe et te ee es ere se er ee cee ee ee ee ee ee owe SRN Oe ene Me te ee eo Td ere aeee penne me ne re ee me ee eS te ree ee ee ro wet Ba a ee IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION ) ) ) VG Nos. 226,227 & 230 of ) 1983 ) ON_APPEAL FROM THE HON. MR. JUSTICE NORTHROP IN PROCEEDING NO. VG 109 OF 1983 VG No. 226 of 1983 Between: EDWARD CHRISTIAAN SENT and PRTAW FORSHAW (Appellants) And: JET CORPOPATION OF AUSTRALTA PITY. LTD. (Respondent) VG No. 227 of 1983 Between: PETRES PTY. LTD.. DIPSON PTY. LTD... WESTWIND JET COPPORATION PIY. LTD... TREVOR BURTON HUTTLEY, JON DEAN WILSON, SCAPELA IRA NOMINEES PTY. LTD... and POVOIL PTY. LTD. (Appellants) And: JET CORPORATION OF AUSTRALIA PTY. LTD. (Respondent ) VG No. 230 of 1983 Between: JOHN BARRY COLLIER and LINDSAY QUENTIN HOGG (Appellants) And: JET CORPORATION OF AUSTRALIA PTY. LTD. (Respondent) etn we att ATE bh tate Mek bade ihe ted oe bale & Dee Ca Oe wae Coram: Smithers, Sweeney and McGregor UJ. 6 duly 1984 REASONS FOR JURGMENT Smithers J: Before this court are appeals following appellant parties: - John Barry Collier (originally the 6th hereinafter referred to as Collier): from the respondent and - Landsay 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 lst respondent and hereinafter Petres); referred to as - Dipson Pty. Limited (in its own right and in its capacity as Trustee of the Dipson Settlement) originally the 2nd respondent and hereinafter Dipson); - Westwind Jet Corporation Pty. Limited 3rd respondent and hereinafter referred referred to as (originally the to as Westwind); ' TIENT ONE AL SLIT BEI OO "ome ee FET OIE ROE OTE wee ew Re BR ere Pan RR Oe eet peat ae ee See eee a e - Trevor Burton Huttley (originally the 4th respondent and hereinafter referred to as Huttley); - Jon Dean Wilson (originally the Sth respondent and hereinafter referced to as Wilson); - Scapela Ira Nominees Fty. Ltd. (eriginally the 10th respondent and hereinafter referred to as Scapela): - Edward Christiaan Sent (originally the &th respondent and hereinafter referred to as Senti; - Brian For shaw {originally the 9th respondsnr and hereinafter referred to as Forshaw); ~ Rovoil Pty. Ltd. (originally the Jlth 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 1n that motion included orders:- "1. That the proceeding insofar as it lies against the Third and Fourthnamed Fourth Respondents Cin other words the 6th and 7th respondents] be stayed or dismissed. 2. Alternatively that the Aprlicants provide security for the costs of the Third and Fourthnamed Fourth Respondents in such form Tia Caled aes one PER ee ee SP a ee te ee, annie eo dw Bee eae - Beem ee ee eee ' -- or amount as this Honourable Court may direct and that until such security 15s provided the proceeding insofar as it lies against the Third or Fourthnamed Fourth Resgonaents be stayed." The second motion was that of Petres, Dipson, Westwind, Huttley, Wilson, Scapela, and Rovoil. Relisf sought in that motion included orders:- "TO 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. FURTPER OR PLTEPMATIVELY . THAT the Applicants and each of them provide zecurlty for their costs of these proceedings and in default oF so doing that the claims aqainst them in these proceedings be stayed or dismissed. FURTHEF. OR ALTERNATTVELY, 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. one That the Applicants' Statement of Claim herein be struck out (a) as beirg an ahuse of the process of the Court IT rete meen pe ny ee eran mR Ey eee ee ome oe «newer ewe wees Uf a weve eee ee re (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 ig 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 proces of the Court as against then. Alternatively, o. That the Applicants and each of them be required to deliver further and better particulars of their Statement of Claim against the said Fdward Christiaan Sent and the said Brian Forshaw before they deliver their defences herein. The issues between the parties arise out of commercial transactions entered anto 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 ainterests, in Petres, Westwind and Dipson and in the applicants Electrum Acceptance Pty. ULtd., Electrum Finance Pty. Ltd., and ina 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 DTN AE eee Se ee re renee me ene ee eee ee mee ee - nae tb lomn we Bee ame ee ee ee eS a al ee OM ae ee re ee eee ee eee ee ator dame ae Ot ee eee tae tel ne eee (B) (c) TAFT generar erm me rome Re IeNe ns: enya A I Re eR ee ee oe ent mee eee 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) By an agreenent 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 Yorshaw 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 ef $600,000 on 20 September 1981 and the balance by 20 July 1983. (The second Wilson agreement) 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 < ane . oo wer tate wre (ad) (e) (f£) (g) OR IT meee RE Reet) CEE IN Pe ee oe ne De eR Ne me eee ae meng ee 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. By an agreement in writing called the Westwind sales agreement dated 22 October 1981 between Westwind as vendor and det Corvoration as purchaser Westwind sold and det Corporation purchased certain assets and Jet Corpocation assumed certain liabilities of Westwind for a consideration being the sum of $1,100,640 payabie by Jet Corporation to Westwind. By an agreement in writing called the Dipson saies 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. Jet Corporation made the payments pursuant to the foregoing sales agreements. Prior to Jet Corporation entering into the sales agreements certain representations warranties and Pa ere at rs ce a ee dee ON at oe med ee a or ary deat eh CONF REES ITA RR Tg Ermey Be Rates mee Ce ne cropper eo eee ey mee ee ee nae er ee ow me oe (h) 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; (ji) the value of the goodwill of the business of FPetres pursuant to the Petres sales agreement; (iii) the value of certain leasenold 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. Prior to the payment of sums of $3,899,360 to Petres on 21 December 198], $1,100,460 to Westwind on 23 December 1981 and $4.00 to Dipson on 21 December 1981 representations, warranties and statements (called the bd id arc ee oa A et ele ne ee ae A ee en Re Se wasn a ek mail we ete * gg raee (i) (Fj) (k) pre-settlement representations) were made to get Corporation. Those representations were in the same terms as those of the sales agreement representations; 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 supject of the Petres sales agreement; the pee-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; - 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-settlemenl representations Petres, Westwind and Dipson engaged ain conduct which was misleading or a A Fale an le me ee leah teeta ah el te le ele De ae ne te hee ee erry ated "8 ter et Ee ae Car A me eR Re due RAR et ate es cre MT Lo (1) (m) 10. deceptive and/or likely to mislead or deceive within the meaning of s.52 of the Trade Practices Act 1974 (the Act); As against Huttley, Wilson and Collier it is alleged in the Statement 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 Co¢cporation, 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; Further it is alleged that Huttley and Wilson as direct- ors of Petres and Westwind, and Wilson as a director of Dipsen:- (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; 1 ET ITER SPENT Swe ne ce te ee et ee creer tee ne eee — : > a Poe eR re ae al eee eee Tate et ene Re he item al adele mate ae a fe ne ee ee nee ee. a. ea ad 11. (n} Further, as against Collier it is alleged that Director of Jet Corporation he:- "Ci? (1i) was aware that the sales agreement representations were untrue and notwith- standing such knowledge caused or permitted Jet Corporation to enter into the Petres sales agreement, the Westwind sales agreement and the Dipson sales agreement; was aware that the sales agreement representations and the pre-settlement representations were untrue and notwith- standing such knowledge caused or permitted Jet Corporation to complete the said agreements; and (iil) thereby - (i) aided and abetted, counselled and procured Petres, Westwind and Dipson to engage in the conduct complained of by Jet Corporation; (ii) was dzrectly or indirectly knowingly concerned in and/or party to that conduct; Co) As against Hogg it is alleged:- (i) that he made the pre-settlement represent- ations 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 MET ey Am SAR Ree ro we em mmm + some ee % . asa Ne ae EO ttn a ee tee ee Dee ee a a tae te ST RS Sgt pray Semen Reags Se eres + — o ed a meee 3 = wo es ee ee (1i) that at all material times as a Director of wet 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:- (1) he aided, abetted, counselled or procured Petres, Westwind and Dipson to engage in the conduct complained or hy Jet Corporation; (iil) was directly or indirectly knowzngly 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 12. referred to above Sent and Forshaw were aware:- (i) (ii) (iii) that Petres, Westwind and Dipson proposed to enter into the sales agreements; that the sales agreement representations would be made and 'that they were untrue; and 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 ~~? AE ete de ee a ee ee Le ee ied tare ee (aq) It is also alleged that, when Petres Westwind and Dipson made the sales agreements Sent and Forshaw were aware: (1) (11) (2ii) i ia lat Matec oalalee he a ae adie Cos amen va's coher ban de amram on tama eadaleal tie eeenameeeiaeeeton ote 13. agreements. that Petres, Westwind and Dipson intended to complete the said agreements; that the sales agreements, representations and the pre-settlement representations had been made and that they were untrue; and that Petres, Westwind, Dipson and Wilson were unable to pay the purchase price oc 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. a «a es ve ens oe wretetestenb at dE tee eee et ak Let oh Teme a Ml ald etre RA AL alee ken nie meee rede R ele de ee (re) (s) 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; 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 agreenent 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 15, a es -F e 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 Walson; (vi) that Rovoi1l 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 Bw Fate SA Rr A ts Uk Coe et let dee oe Re ee oe 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 ina "matter before the Court. No submissions were made on the ne "he NTS AR pean Tenn me pemey SEY RAE ENR eRe FN FEA ee ee ee ee me ee ee ee w aN A Ee we eee eo a eee ee ved Le ee ee Cees Re Ct A een eer ee dat That ee ale EC meTrereamenerman rete cent apart eager (—— om we Rm NSS erent mee ned oe ee A ee 16. 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 behalr Mr. Archibald, relying on o.il y.16 and 0.20 ¥.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 Daipson 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 ana 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 collaberation or association with Fetres, Westwind and Dipson appear. wm Se aelted a me a a ALR en dee NerNne ie teenth mee ab ae Uo 8 Oe ee tee Ire ee ear Neer ae ke te oe Ae ne a ee re Te oe aeee -- 4 =e we - L7. 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 un the anterests 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 wf 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 15 clear that to be involved in a contravention consisting of misleading and deceptive conduct it 1s 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 ers ele = ae? BB ee eee Se RE Ce ie oe lene aoa nce be S Caen cate Neen GA Dante heitasleme ote mee eo te a SUR el oe ee 18. and Wilson were not entered into perfectly bona fide as amatter 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 1t is seen that assets are sold toa 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 @ participant in, the negotiations for the resale of the assets or promoting the making of misleading statements by the purchase: to a subsequent potential purchaser, the mere fact that the vendor was aware of impending misconduct of the persons reselling Che 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 TH oe are Serrano: Tr stedatents "alm emcee oem ed ate vee "4 1M aL are manda He LUMA el EL a Te a hee ee en ee darimtale Db adnate ante tT ee ee 8 RE EER AP ore NIN NR re em an Rr en ee ee ee ee ee eee 19. 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 particzpation 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. £19713 1 WLR 1085 ths expression "party to" ain 232(1) of the Companies Act 1945 "must on its natucal meaning indicate no more than "participates 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 aparty to carrying on a_business if he takes no positive steps at all". But there is in det 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 wT wh ee alee * Mere = ed ee oe Penne Ae PR ee et Red Re means Sat ne 8 20. 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 SO PE TR NR em RII ONIN AN ener peri ore genes appa eee ne eee wee re ° - oa ' "4 "oe t { t - f ¢' ete fe a ee ' ta ate Lb ee nne tee trae gs Galerie Te ae Rene ee et me ne reat te ay dents 21. Petres, Westwind and Dipson negotiated were sales ata 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.4680 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 suqgestion that there is disclosed in the Statement of Claim a duty of some nature on Sent and CN TN FY 2 RE YE METI SAR ON Ym Sepa enn Fapete Ment pee wae Re ee Reena Ree ee ay ea ee " ' ~ o , ' . ta ' oF wes tin * ett ene testis mina a Aneel eee ate A Lew oe Re ke ae et te i ' ate lee Sos deh dinhdatetiel neelis "eedineads Salle eames habia ieamam nee ameneeimtadametenmenieae ame io mien tema ene iedieaneeten tasted nee eee 22. 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 ain General Steel Industries Inc. v. Commissioner for Railwavs (NSW) (1964) 112 CLR 125 at 129 are in point:- "There 1s 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 m2 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 1s invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. Dizon J. (as he then was) sums up a number of authorites in Dey . 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 x . mene TR we ee N WwW @ that a transaction is intricate may not disentitle the court to examine a cause of action alleqed to grow out of ait for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once 1t appears that there is a real question to be determined whether of fact or law and that the rights of the pacties depend upon it, then it is not competent foc the court to dismiss the action as frivolous and vexatious andan abuse of process." " were eee et 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 aunterlocutory 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 ee Fae ee oh may be advised. *This was the course adopted by the Full Court un L. Grollo Darwin Management Pty. Ltd. v. Victor Plaster Products Pty. Ltd. (1978) 19 ALR 621. eats Nae dA tele en 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. aaderen 2 ed EE eed, 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 ew tee cette cee agreements to be entered into and completed by Jet Corporation ae wht Patt ARTE TN ITED TEEPE NOTE LET RL CATR pn mee tee A Ny eS tem ey ne a Re emo rene mere een ee oe « * + ra - ~ . Cr ay oo ate . ' - eRe A eae te Beale Petal Millet Seale BLA Aileen FS tein enh eree ee eo Fomine ee fet oe SAR ee et mm a te me ee - 24, 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 ard 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 Hogo's case the pre-settlement representations) referred to above were untrue and notwithstanding such knowledge caused or permitted Jet Corporation to (in Collier's case) enter anto the Petres, Westwind and Dipson sales agreements when aware that the representations were untrue and (in both Collier's and Hocg'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 aqreements. Mr. Chernov relied on the observations of Adam J. in Rubenstein v. Truth & Sportsman Ltd. £19601 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. Phillinos (1878) 4 QBD OR a eg a a ee me ene et ee ep ty ee ee ee wear eee eee Lee x Pree rey . ? etawe - ee ee AT tat a EEE eee ce A de en ee ek want ee Seer ee ere SarnY + ' Settee ton AA Am oo eam eee A oN a ne ee ee "se - Py " cs 127 at p.i39; "It 1s 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 1t was isolated from any circumstance or context connecting the defendant Marks wath 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 re ee ee ee eae ere oe one hos Mh entre Ae re Sn a ee ee ee re ee en SN De ent et ae ht te eee et Boe net a ee Fa daan ner Samtateee SE et AREY AEN a Enea BIE EL EN cent hein matin i Nene Ate ne uae mt me fee Cae ae bated at onten e te SR TIT Ry i re re ep Re RN eI fen er Se ee ee BR one eee oe ~ amen es morte ne 26. 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 reievant 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 Hogq 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 ora party to the contravention by Petres, Westwind and Dipson of s.52 of the Act. The allegation that Collier and Hoag, as Directors of Jet Corporation caused 1t 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 % my . ~ 4 tee em ne et wea Se a - Ee Leena El ee et a te Ps OD oe ee tert ae oe cd TYE EMT TR aE a erent any cate, he said, a connection between Collier and Hoag and vw misleading and deceptive conduct of Petres, Westwind and Nipsen was indicated with sutficient siaqniricance to induce the Courk boa refiain from striking out the claims against Collier and Hoac. 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. Pay o th D w uqgestion that because of the knowledge and As ee im] hy conduct ef Col y and Hoge as Directors of Jet Corporaticn Ov fii) ul aw ss che pleading de ad the alleqation that that company was misled, Mr. Graham said that, once again. there can he at this stage no clear acceptance or even revlection cf this suggestion. It could not be said with certainty that the conduct of a director or of more thar 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 justifv the summary intervention of the court, to use the Language of Dixon J. in Dev_v. Victorian Railwavs Commissioner (1949) 78 CLR at p.Y¥1l. Ic is not "so obviously untenable that tk cannot possibly succeed" (See General Steel Industries fa 1¢6n Inc. vw. Conmis vr ter Railways (NSW) (1964) 112 CLR 125 at \ . . Tan * ee anditmtad eaecahdieieetiniachataitandataeteareneteanaerh atieaeliaiedatenatat heaaliinebetetaeteentioaebaalaten ahantesnentenetaeiiete fa Seth se eee wk a te re re ee ee ate eee wee oe as wae ea, "ae weet eres ere eer ft ore ne eae eee ew Beet AW mae te te Ne SM CO tet A eet deh ee ele meee a oe oS teats , ent ere Lae Se TTT TLE RE AAR SIE ere ee ta Fee Nee ek APM my eee wee 28. pp.128-9). The appropriate time for a decision on this submission will be when the evidence has been heard and the facts found. LT turn then to the motion filed on behalf of Petres, Westwind. Dipson, Wilson. Huttlev. Scavela and Rovoil. At the hearing cf this apreal Mr. Hargrave addressed arauments relating to the Statement of Claim oniv to Wilson and Huttlev. On behalf ot Wilson and Huttley Mr. Hargrave contended tnat an allegation made against them that thev as Directors of. and persons in control of. det Corporation made che saies agreement and pre-settlement representations by causing the Petres. Westwind and Dipgon sales aaqreements 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 allegaticn of fact. The observations above with reference to the similar contention of Mr. Chernov on behalf of Collier and Hoag 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 alleded 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 4% . wea me Re ee ee oe Shera tee 29. na Ane me r no alleqations are made in the Statement of Claim of awareness sae ne on their part of the untruth of the sales agreement and or pre~-settlement representations, it 1s even more difficult for Mr. Hararave to sustain the contention. And in turn this further weakens Mr. Chernov's submissions that the minds of ae eee eee his clients have to be treated as the mind of the company. Although it was not arqued by Mr. Hargrave, the lack of an allegation in the pleadings of awareness by Huttley and Wilson of the untruth of the sales aqreement and pre-settlement representations may constitute a defect in the case sought to be made that these appellant parties were "involved" aun contraventions of the Act pursuant to s.75B thereor. PL tetas ae ee ee Fe ele ee ee Re oe 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. for Costs ts] fo) ie c % MH me Bint Whe Anca batratemal wen! 2h tere hit tehat a La La Ae fale t Nate a ater leh Bach of the appellant parties contended that with respect to their applications tor an order that Jet mia et eT TRO RIE Te TE A I mn IY Ci en ee ae Rene Ante on em nT een ee ee ee ee 8 peers wae re whe ee Bh NRT Ltt ae eet erm Le AS meh Awe DR i ee ee et ae ee a whe de a | | 30. Corporation ehould provide gecurity 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 appellule court should exercise particular caution and be extremely reluctant to interfere with decisions of primary judaes 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 iqnored or irrelevant considerations were qiven 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 ona point of practice or procedure". See also Jordan C.J. in In re the will of F. B. Gilbert (der) a nt et Nae a ee Ae TT ae ARR Ye Be ne he ee ne ee ek rn we ae ee ne ee re eee Ante a al Satta eae teraars teem este aden Le be cant ate he ate on tBu ie hate RTE TT ee NES TA a PR Ne Eee pare See SE gat ~ ne sans ~ — is, wees ve e ~~? . . "e CU ae ane pe ee! om ee eee ee -- ,- ee ener eee we ete . anes ~~ 31. (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 0.28 ©.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 ov. 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 thre 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. Sr eerie ere tue ees swe me oC nn el ee ee ee ee ee Pe ee ee ae ee oe et eR ee ee Mee ee ie ed tare Male SE wr lah Lees eee meee ees PEN aeme me Moan wh Delt r 32. The learned judge was clearly of the opinion that consideration of s.533 of the Companies Act (Vic.) 1981 was within the iurisdiction of the Court. He dealt with the question of security for costs with that section in mind, and also by having regard to 0.28 r.3 of the rules. He made reference to to, inter alia, Drumducno v. Braham (1982) 42 ALR 563; Newton Travel Services Phy. Ltd. v. Ansett Transport industries (Operations) Pty. Ltd. (1982) 44 ALR 163; Tradestock Ptv. Ltd. v. TNT (Management) Pty. Ltd. & Ors (1977) 14 ALR SZ: Memutu Ptv. Ltd. v. Lissenden (1983) 8 ACLR 364 and Buckley ov. Bennell Desien and Constructions Pty. Ltda. (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; (ec) 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 qenuine one; (e) that there was no suggestion that the applications for SO terreno ements ee Eee a pe en a ee ge ee ne ee en nm ee x wane Samant Ob an et ee ee ey Ere 3 ' - 3 33. t q e ' oO security for costs were brought oppressively in an attempt to stifle a genuine claim; (f) that most of the facts which Jet Corporation is week 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; (gq) that there are aspects of public interest inherent in a claim under the Trade Practices Act 1974 which weighed in the balance aqainst the making of an order ee ae re ek ee Fk for security for costs; Ch) 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 ream ht Fee nk Arent SL rte rh Ae Ne em aie Senate Um oe cama 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 pee tren al he Badan ee ee elt ae oS nate ELA LE LOL NT LE ONL LEST LLC TE A Ee OE RRA A EAE SI I Fe A A RN A NS Ham tetalaeredles a ea nie oy neti Arenas Yikes es ete Re ret ae pee ew ae Tae tee Nts a tenn FLAT al Hn helm eaalanee Atk Lanne oe Parmesan ob Selb a se ee Ne ee ee ae) - ee Re ee ee ee 34. whether the action should proceed or not is that of Citicorp." From the transcript of the proceeding before the learned Judae 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 0.28 ¥.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 muidqht 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 Ptv. Ltd. v. Suzuki (Australia) Pty. Ltd. & Ors. (1981) 34 ALR 652. But to approach the matter through 0.28 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 1s approached with reference to $.533 of the Companies Act (Vic.) 1981. And in the decision of the matter by reference to 5.533 in the judgment under re ee - - ty en eer nee 2 Be Ree a eee ere ts Mane we ease Nn prt at ne Net te te ee oe ee 1 ma afinbenee evietie Safes Je Late el Sad ae ernie y a lt the Lat anne a non ed Aaa Settee ele Ae Anes oA eed OY oe Te ae Bk BL CS iin 35. 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 1s 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 suagestion 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 RENE NT LE EI ANN IEEE AEN ATO AIRS SH eR IR ee RE Nt FHT 7 7 Nana ve te ae a ¢ 2 et hla 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 agranting or refusing an order for security for costs. It isa 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 Meqarry V.C. in Pearson v. Naydler £1977] 1 WER 899 at 906-7: £19771 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 1s to have power to order the company to do what it is likely to find difficult in doing, namelv, 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 hy shutting out a smail company from making a genuine claim aqainst 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 inabllity to pay casts as a means of putting unfair pressure on a more prosperous company. Litigation in which the defendant will be SRR AURORE mrt nS CCRT ORNs Ee pe rae erm mer 4 . - - . 7 Ane AanSataatar ane Ane Dentmnndtemen watnthin = 8 wee Le de ec ee A ee ee Pe a er ne aL: SO ee ae ET Co def ee we o. he te nL ett ie eat ls AN I lk Reel IN Al a gt Me a et EMMI nite Mn me ne i el ete be ae Adin ed te oe 37. 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 an 4 October 1983 and thus. before the order for winding up Jet Corporation. No submissions arising out of the 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 cee le SLE EL ETN RM TE ATS A NTN AY REI ARERR AY RNR rR Re yp eee = Maes mo cat oe = - fo 2" ' .! ' > - ote - af . . ae Bette than ta bee ee ee te ee ee ee ee ee ~- ' s 38. Ded eal a ~ and his right must be deferred to the rights of sats Fafed ete naa ar that this answer is, for present purposes at v rights, they are rights in respect of the unsecured creditors those who yepresent the rights of the secured creditors." It would seem least, a sufficient answer. It is supported by reference to the observations of Romer L.J. in Gouch's Garages Limited v. - "ete ee te L.d. 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 endin 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." obtain a new lease of business premises, and Puasley £19301 1 KB 615. There, a receiver had bequn County Court proceedings in the name of the relevant company to shortly afterwards an order winding up the company was made. Romer 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 ret eet a - Nana Eo temeetae B NL tn ee OE Let ke Oe Foe AORN Ren et ell AO dae la A gee etl a ethene adn Oe ene ee ne NAPIER FE AN RRERET 2R CET Ee EE TA ne Ee Se ee penne a See also the remarks of Goulding J. in Sowman v. David Samuel ene tnee man nee - how ee ad Madd he AA dae a eee de tS na Oe ein dank Pate chee e ees een Tad, nnn wate met A AT Lhe aan SER EW etal tes teeta treed "as a eS Sill enfin ea ee ae meh NT nee ae ee ewan cole EM. ee = tied ar rc a? 9 one te D 39. hold and dispose of the company's property comprised in the debenture, ancluding 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. Puasley (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 0.28 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 Mr eee oa ee ee et he ee Baten 5 Se a a Ps aR ETN Hamat mw een A bk en ae ad Oe nly dn oe a: Sweats al ant Seta. weet EE ot. ee el ee - wee eee eee He - He ee eee ee ~~ oe eee 40. (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), (ad) 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 whois 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 show is that the company will be unable to pay the costs should it fail. If it Pa « 2 Maw ae ~— re ee eee cee eS Stree es © et ee Bnet meats Renta ne Re Pe ce ee Me Ne a ee ne ee N 41. is going too far to say, as was said by Street C.J. in Buckley v. Benneli Desiaqn 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 Cd mM RG nt et HE vate te adele ddlntor 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 the discretion. 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 mot 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 leazsned Judge may seem proper should be made. Having regard to the foregoing it is my view that this PbS be UR 8 a dhe DP ee = a tbe! meee Beas Alc elie hake STR mete eames wieder ee mate ee SET RTT ELE oT LT GLE OO EN EEE TINE A A AORN I A te ete = mre mya A BaD on reed! ee ee ene een . oe Bet 42. wee te te on hee @ 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 hima 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 ee ee 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. S. The determination of the amount and nature of such security is referred to the Judge from whose decision this appeal 1s brought. I certify that this and the 41 preceding pages are a true copy of the Reasons for Judament herein of his Honour Mr. Justice Parente ak A nr AN a ee a ee i te et TO ater ot Smithers. < Dated: b/ 7/24 Sheen Cp lite ' Associate aiensal eCPM INI YER ST PN eC AT AT IA RA A NP Pe ey Re emermmen erence 8 ET we mee * - a- Vte ese ' . we 77 Mirkin, Bente bias ane IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG Nos. 226, 227 & 230 of 1983 —S wwe ww GENERAL DIVISION On appeal from a single judge of the Federal Court FT te De re seh tala tented rk tite La aa nh natant het idl Deeded det an Raters Pete ee" 21d Rane aeneett ~ wet ue i hts, mmm eer Lee abt —Stan nae Sur Ei aber! Seateatied teals OA of Australia. VG No. 226 of 1983 Between: EDWARD CHRISTIAAN SENT and BRIAN FORSHAW (Appellants) And: JET CORPORATION OF AUSTRALIA PTY. LTD. (Respondent) VG No. 227 of 1983 Between: PETRES PTY. LTD., DIPSON PTY. LTD. , WESTWIND JET CORPORATION PTY. LTD., TREVOR BURTON HUTTLEY, JON DEAN WILSON, SCAPELA IRA NOMINEES PTY. LTID., and ROVOIL PTY. LTD. (Appellants) And;) JET CORPORATION OF AUSTRALIA PTY. LTD. (Respondent) VG No. 230 of 1983 Between: JOHN BARRY COLLIER and LINDSAY QUENTIN HOGG (Appellants) And: JET CORPORATION OF AUSTRALIA PTY. LTD. (Respondent) Coram: Smithers, Sweeney and McGregor JJ. - Place: Melbourne r Date : 6 July 1984 Reasons for Judgment Sweeney, J. I agree with the reasons for judgment and the orders proposed by Smithers J. _I certify that this is a true copy of the reasons for judgment herein of the Honourable Mr Justice Sweeney Vokr Cohe, Associate Date: 6 July 1984 Lidia tr tbeed bee aa inte mates wan antes nchachabe SA nal atlanta malice tesa h thet tet Hd nt Sane aid ce ALLY Ge ee a Re he en Hn ee eR ee nk ee den et nd Rete An oN ederneeneneme Aumt ae RSD IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIAN DISTRICT REGISTRY ) VG Nos. 226, 227 and 230 ») of 1983 ) GENERAL DIVISION ee eee eo ard ceed APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA No. V.G.226 of 1983 BETWEEN : EDWARD CHRISTIAAN SENT and BRIAN FORSHAW AND: Appellants JET CORPORATION OF AUSTRALIA Pry. LTD. Respondent No. V.G. 227 of 1983 BETWEEN : PETRES PTY. LTD., DIPSON PTY. LTD., WESTWIND JET CORPORATION PTY. LTD... TREVOR BURTON HUTTLEY. JON DEAN WILSON, SCAPELA TRA NOMINEES FTY. LTD. and ROVOIL PTY. LTD. ZS, sekime arate rbantcenrnernetenn! Sakektemtaste mo mpcantantitataniphietn Amteatemee lee a oe ee te bee oe | Appellants AND: JET CORPORATION OF AUSTRALIA PTY. LTD. Respondent No. V.G. 230 of 1983 BETWEEN : JOHN BARRY COLLIER and LINDSAY QUENTIN HOGG Appellants AND: JET CORPORATION OF AUSTRALIA PTY. LTD. Respondent CORAM: Smithers, Sweeney, McGregor JJ. DATE : 6 July 1984 ATO NTL NT I Te I A TI EE PHAR RY TET RIERA oy NE et NE TRE RTT HN PA YATE, SATE 4 ' eae an eet er ee ret et a en I nl ne ne ee bee ane, 2. REASONS FOR JUDGMENT McGregor J. (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 3 On 27 June 1983 JET CORPORATION OF AUSTRALIA PTY. LTD. i : 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 eighth respondent (Sent), BRIAN FORSHAW, the ninth 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 ] i i ! { | (Forshaw), SCAPELA IRA NOMINEES PTY. LTD., the tenth respondent i { i ; j 7] z 3 respondents based on alleged breaches of their statutory and # a q FET UO PRP RI res ae Soro PPI Se ee ITY Ree mit enema ate anerte Way eR ee ~ eer RT OT ES ae Tae ee 77 ° a ' ~ ~ & ve oe é A ae {etme AR eta ei ae ale hermit lee oa LN ot etna chee Dae ae mR ae eee ee RU a Al ats me ea eR oe ae ne AH LOE ee ee tne te et a a ee tel neem tir Da re, a Saane wen entree ctictne panne ntti ae arial melee Sat it bean eats ain abet el hdnan Lethal ti at! el Sank Ai de alten wt Oe tne { iq : { { ' | i } | 3. 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 - "(L) 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) mo reasonable cause of action is disclosed; (b) the proceeding 1s frivolous or vexatious: or (c) the proceeding is an abuse of the process of the Court, the Court mav order that the proceeding be stayed or dismissed generally or in relation to any claim for relief in the proceeding. Se eee nen reer s: andiua hen Senheenmensaaiomninianee al "s » . . pa canny anne wo eee Se ~- ae te ee ee ee ee ee ee ee ed at epmemnnile ahead inet Ube RCO Elna tiel phantasy BN EF Aah neh mete ee een tne ee ee ne Me » we 4, (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 1s 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 qive such security as the Court thinks fit for the costs of the respondent of and incidental to the proceedina. (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. Alleaations which were made in the amended Statement of Claim filed on behalf of Jet Corp are set out in his Honour's Reasons for Judqment. 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 undertakinas i ae NO ATT Heat ed anid ll tabenard Oy arr ayn mor mee arrears Seem ae ee a as eer Yomi om mw ro — ee np a are ' Be ptt ye a ne ee Se ee ee ee Reet een? "2 5. of the Trust. Purther, Citicorp had appointed receivers and managers of Electrum Acceptance and Electrum Finance respectively. We were told by counsel that after the hearing at ay res first instance an order was made for the winding up of Jet Corp. Inman ee 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 een wee. the Act aqainst 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 Hoaq 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 Rab sZilLietecmimab crete nthe tect) naomi amano Shatin Msi eh AL And ealadahda en eat ent Ratatat mit oe ae a + - Pay CTR RE TT ETT ER TEER St At ER NM A A a A salen te ae. eae Cte pat ake aa 6. 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 aur 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 bv 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 originallv applicants at the hearing before the learned Judge at first instance, they had ceased to be applicants and had no part in the ST rere rene pe ~ seit ee pre eens ane rnennwenm ene — ne ere on ' » | aS ce nla ei eae ne en ee ee ce able Pn ee em ee pe ee ee eee ee ee tee Be A ; a 7. present litigation. Electrum Acceptance had carried on the ee ts ete business of aircraft leasing, and Electrum Finance of financing the acquisition of aircraft. Counsel's summary of the activities of the various companies 15 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 entitied 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 ricght title and interest in and to Petres, Electrum Finance, Electrum Acceptance, Westwind. Jet Charter Australia Ptv. 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 Wiison Son Te re SO ELE SRDS PUTT SACO. UNLES WOTRDT SL UNS eRL SC RCSONY Co Ons OE 0 aT OO nS SS a OS OD eR LO a Gee eeeneain tae Pere CARS nr ey pe semen enn owt A ee eer nn res ego fa ne ata rmacinnnernirina teal Rat Nat mtn Tote teal Lily he 8 Cokin A ee cnet Eat howe hela Lue ate abel 8. 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 64,800,000; such sum being payable as toa $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 Aqreement. It was acknowledged that the initial deposit of $400,000 had already been paid. The Statement of Claim further alleqed 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 aiso 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 isle ig" ta a a en oneenelee meme eee Wee Te 6 napeeecener seen rere ee ed me ne ee re er ee ee eae e! ante a hettrataartcenttse ORL. we G tage ae wt eden eee Ze. Panabnetane ett adn teaet abana ahedun eh bd anerbnntn an 0 . + , ' - Te ate ae Rina lr AA La creda Ah Maumee cat Santen alone dae nts abttnen lime nett , EL PES NT eae mute, Siditas en Feehan ee eT em —~ worn ere ae mee A 8 per 9. no allegation of control, effective or otherwise, of the companies mentioned beyond that date. The conduct upon which Jet Corp relied arose in substance, 50 1t 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 Aqreements were respectively Petres, Dipson and Westwind. The subject of the Petres Sales Aqreement 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 aqreed 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 Girectors 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, Blectrum Finance, Petres or Westwind. Accordinaly, said counsel, ona 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 pce neta ep et ee een oe ee henna coe cane ec eee eee blahatee et ee eee —2* oe A carne AR Rt i lr RR Rr Rate een LN A ee en ae eaten me te Rh en oe en dam tena ES Y 10. Sales Agreements referred to. Para.33 of the Statement of Claim, as counsel pointed out, referred to the Petres Sales Aareement 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 Aqreement: i1t 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 Aqreement the purchaser (Jet Corp) agreed to pay to che 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 Mr "=e _ — —— ony nee mate te nn te Ate mea RR Nn ee ¥ camaley rewrote rk, rien babinneret are sient dimmer debate ely Ne mt eee et ee We _ PPR Te NSPE RE RY FFE TP ng ein pg ape apne paren ee Ll. "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 Aqreement were also made to det Corp in a report from Messrs. Simon Lidgett, Collingwood & Co. dated 21 September 1981 (referred toas "the Lidgett report"). Para. 51 of the Statement of Claim alleaced 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 alleqation 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 - Peer. 6 " we 3a ae Speer weneer Peteeey eed "a teed ieee ee a FaSNA Ange AULA RG SH neem hinder elie eel bented eee dts Mnnhele AMC nee eatin SETTER LETTE Ae mY nee ' wet Fy - oa? 12. were 1rrelevant, otiose and, irrespective of all other circumstances, should be struck out. The word "caused" in para.6l(a) was, he said, an allegation of law not of fact. He submitted that the crucial allegations could have been those in which 1t 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 enaqaged in by those other entities and, in that state of awareness, ceceived 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 Dey v. The Victorian Railwavs 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./75RB: 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: Rv. 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 tamer. Tae oa yoann ate mt ek Se ee et a teem Ct ee ee le re et el earn mt ae | = BSR eek Sr Seley eas a eee et aera ee Sem ancenaadeteieh maaan an teats ee ¢ Sine f i = ee treater = - 13. @ 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 alleqed against Sent and Forshaw; this was itself a qround 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 arguments 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 oe ae ee ener ek mee ee he etme Renita eentiandnees 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 we ee Me eee ie FOOT er RE EI ETE I | PREP ee FI PONE ere NN NR Ie ms a NEE em PAP pn ft eta ' . ' . A a > i » Py 1 a = - ay oth vosee a nn at ee ee te ee ee ne et ee oe ee ee -- wb. pie) tint anti ns o > we te ie oe te eel Alena mainte sane Rett nttapniinn at Mie SS \ 14. an ee nett ata ae @ 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 Ptv. Limited (1974) 1 A.C.L.R. 301 (Buckley) at nee 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 4 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 Ptv. Ltd. v. Wurth (1975) 1 A.C.L.R. 314 (Collignon) at = p.315: Lynnebry Ptv. Ltd. v. Farquhar Enterprises Ptv. Ltd. (1977) 3 A.C.L.R. 133 (Lynnebry) at pp.134-5, 136: Salterqgate Insurance Co. Ltd. v. Hagerty (1979)_4 A.C.L.R. 531 (Salterqate) 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 are ek Sa me ete hee a a elle Reanim Lene bee meee eo muted 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 ae ee em SRT TT EET GT ET a Le A FRE A TEE EI GA A I EY Tete tat nN ae ane Aten ele teeta eh cen a ed sso Rall a ta Mende ee tents nema iinet bene LARP ly ee ee an ne Lan . Momrbidaren hirer d=, tet ere ame + aetna inane: a Bee eek ee net cet raate — Ea re ES TORT SNORT SONICS OY ERT NOR-OCT AO SOR oh Set Se aS O17) a See a t ' ~ 4 onal Oe dae a aha silts apt el SI a ne i i ee arene CeO RN ETAT YORE TFA rn rst 15. (Lloyd): Semler v. Murphy (1968) Ch. 183 at pp.191-192: Cowell v. Taylor (1886) 31 Ch.D. 34 at pp.38-39: Salterqate,. 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 Salteraqate at p.535: Colliagnon 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). " a wae 7? ater ateietaation dar Siete aaemelecnieeaneammnioan mend ts el armen ne | ' eee ae ee ee ee eee whe cementite anand eter a tee amen i nee emt celibate a tated I t {| || ; f l is \ ; { t | t i ){ 16. Mr. Chernov of Queen's Counsel who appeared for Coilier and Hogg adopted what senior counsel had submitted on behalf of Sent and Forshaw as to the issues and as to the means of aiding and abetting the vendor companies. He submitted, further, that the facts as pleaded against his clients if accepted did not establish that they had aided and abetted the vendor companies; alternatively, the Statement of Claim was embarrassing. He pointed out that at no stage had Collier or Hogg anything to do with the vendor companies though it was admitted that they had invested in a trust, through their respective family companies, of which Jet Corp was the trustee. He said the alleqation amounted to one that Messrs. Collier and Hoqg, having through those companies invested more than a million dollars to acquire units, had then somehow induced Jet Corp to buy something which was not only worthless but also had acted fraudulentiy in so doing. He argued that this as a matter of common sense did not "stand up". The first mention of Collier, he pointed out, was in para.50 which amounted to an allegation that the false representations were made by "causing" the Petres Sales Agreement, the Westwind Sales Agreement and the Dipson Sales Agreement to be prepared and to be entered into by Jet Corp and causing the Lidgett report to be prepared. He submitted that that allegation was either meaningless or embarrassing; that 1t pleaded a conclusion and not a fact from which one could be drawn. Again in respect of Collier, the Statement of Claim, he said, in para.53 made the same allegation in relation to the so called Pre-Settlement representations. Paragraph 54 of the 2 re Rae ene Oy Er ee Ee ON Re ee ee G wt etl eet ee Sipe Ae A bet arene RT oN Antanas at heat iins howe deel oe etd rte tema eldee oe Calne nadie mncrntnvemndineletaten cme, sane aut 17. Statement of Claim, he noted, attributed the Pre-Settlement representations to Hoqq by his causing the Petres, Westwind and Dipson Sales Agreements to be carried out and completed by Jet Corp without alteration and causing the Touche Ross certificate dated 21 December 1981 to be prepared. Later he submitted it was attempted to involve Collier and Hogq in the alleqed false representations by putting forward firstly that Collier was a director of Jet Corp and, although aware that the Sales and Pre-Settlement representations were untrue, had nevertheless caused or permitted Jet Corp to enter into and complete the three Sales Agreements. Secondly 1t was alleged that Hoqg was also aware that Pre-Settlement representations were untrue yet caused or permitted Jet Corp to complete the three Sales Aqreements. Both Collier and Hogg thus, he said, aided and abetted the vendors. The allegation, accordina to the Statement of Claim, was of awareness and causing Jet Corp both to enter the Agreements and to complete them. He submitted that in the case of both clients there was a missing link; there was no nexus pleaded to establish that Collier or Hoag participated with the vendors in making the representations. He submitted in summarv that there were no facts pleaded which linked Collier or Hoga with any relevant conduct of the vendors. He referred to Rubenstein . As to the capacity of Collier and Hogg, he referred to Tesco Supermarkets Ltd, v. Nattrass (1972) A.C. 153 at p.171. He submitted that certain paras. of the Statement of Claim (e.q. 50-59) relating to Collier and Hogg should be struck out. There would then be nothing left as against his clients. Therefore, against them the whole action should be struck out. | | | | i | | | catetacln g tn s a tether ~ eee ne oe Seek dere en a AS a ot . ae . Se Seen OTT Dent Oar OO OnE TOTS TUDO TET STOTT STILL Oe Sette STONE SmeTOSe L mat a SE ETON TTT Seed Weems Irn nner rn en at et i ee i ne ae athe tte tel ane nee ae ee eterkinns = stitial 18. Upon the application for security for costs, he referred to the affidavit of Collier wherein the latter expressed his belief that Jet Corp was in serious financial difficuities; that if it failed in the action there was a substantial probability of an inability to pay his costs. Counsel submitted that as to ordering security for costs, the Court had a discretion; that in exercising it there should be taken into account all relevant circumstances. These included that Jet Corp would not be able to pay the costs if unsuccessful at the trial; an order for security would not shut out Jet Corp from pursuing its claim; it was not possible to say on the material presently available that Jet Corp's impecuniosity was brought about by the actions of Collier and Hogg: Memutu Pty. Ltd. v. Lissenden (1983) 8 ACLR 364. He also referred to Newton's Travel Services: Tradestock: Drumdurno and to the Reasons for Judament of the learned primary Judge, who, he submitted, had not made any distinction between various respondents. Counsel for the respondents Petres, Dipson, Westwind, Wilson, Huttley, Scapela and Rovoil adopted the arguments of Mr. Chernov as to the wording used in paras. 50 and 53 of the Statement of Claim so far as they referred to Messrs. Wilson and Huttley and, in particular, the use of "causing". He submitted those paragraphs should be struck out with leave to re-plead. He did not argue that the whole of the proceedings as presently pleaded did not disclose a cause of action against the Lalande cde neeementendineieen ieisieanieemtenetnmmnmemnetemmeieatanteanemn meme 27-206) een Tae a i ae wee Bark wn ae eben 19. @ respondents. He submitted further that if Messrs. Wilson and Huttiey could be said to be in effective control of the three vendor companies (i.e. Petres, Dipson and Westwind) and of Jet Corp, albeit with Collier, the person said to be misled (Jet Corp) could not be misled. He supported earlier arquments as to a ee a ee security for costs. He referred to the financial interest his clients had in the Jet Corporation Australia Trust as relevant to the exercise of discretion in favour of ordering security for costs. He adopted arquments already put in relation to s.533 of the Companies (Victoria) Code and as to Jet Corp's not being prevented by such an order from litigating its claim. As to the way in which the discretion to qrant or refuse to order security should be exercised, he referred to Tradestock per Smithers J. at p.56; on the clear balance here security, he submitted, should have been ordered particularly as the intending applicant clearly would not be prevented from litigating its claim. He arqued that the order could be made under s.533(1) or the Federal Court of Australia Act 1976 s.56(1). He referred to Order 28 r.3 sub-r.1. He submitted that his Honour was in error in not holding that this was an action for the benefit of Citicorp. He referred to Tulloch Limited v.. Walker (Unreported, 8 December 1976, per Yeldham J.): Lloyd at p.159: Andrews at p.308. He submitted the mere fact that the action was beindg brought pursuant to the Act should not place a plaintiff in any better position than any other plaintiff to entitle him to resist an order for security. Moreover he submitted the learned primary Judge had not given weight or sufficient weight to the hardship x ened dale ed ih ta aban An AS NAST Hale Doha Uinta De abled hikes Desks at wane ete ate Aare 2 r "4 By a TO EE EE TE LT EET 8 RT TN ERI SEP TRS EE deen tentate ee ete we ee ee lawman etated yh tne She tabbemmbambine Malad Ca Rc a AIS, Naha Cend te ee Le Rie eae neers i amet meee Bee ee o - FO alle Ni eam a NCAR 2 Ok mee nad SENT POSE eer cee ceagemete eee ene seer ie eg ee " = fe - = he = malta a eS al 20. in the event that no orders for security were made to the respondents particularly to the possibility still completely at large, viz. that they would be successful in their defences. Senior counsel for Jet Corp, Mr. Graham of Queen's Counsel, pointed out that Collier and Hogg by their Notice of Motion had not sought any relief in terms under Order 11 r.16 which enabled the Court to strike out a pleading in whole or in part. He drew attention to the conduct of the matter before the primary Judge, i.e. on behalf of Collier and Hogg an order was sought pursuant to the provisions of Order 20 r.2; they had not sought any relief in terms of Order 11 £.16 which enabled the Court to strike out pleadings. Counsel submitted that the matter had not been then conducted on the basis that there was no cause of action, that the Statement of Claim was incurably bad. I note, however, that Order 20 r.2 does envisage that proceedings may be dismissed generally. Though there had been, he said, an application by Collier and Hogg to have the matter dismissed at the threshold, it was adjourned and not disposed of by the primary Judge. Further, he said, there had been no attempt to invoke the provisions of Order 29 r.2. He described what was before this Court as a "Dey's type of application", meaning, as I understand him, that the respondents here. in order to succeed, must show, in terms of the words of Dixon J.. as quoted in the Reasons for Judgment of the learned primary Judge, that there was not "a real question to be determined whether of fact or law.... Only then, he said, could the various respondents succeed. He 'e SST VW earbeet Saad Wise 'a FES Seek i ne ete, ae enna mt pe A ce pA a A i RE or nM 2l. referred to the Federal Court Rules. He submitted that evena close analysis of the requisite principles would not warrant the step of striking out the action. He referred ta questions which had been raised before the primary Judge including whether a proceeding brought pursuant to s.82 of the Act compiaining of a contravention of s.52 could succeed where some of the directors of the "victim" company were party themselves to the deceptive conduct and thus not themselves deceived. Such a question, he said, was not one which could appropriately be decided in a proceeding of the present nature. An allied question, he said, arose where it had not been shown that all the directors of the "victim" company had been deceived. A further question was what must be established in order to show that a person was "involved" in the contravention within the meaning of s.75B of the Act. Such were the importance and complexity of these matters that the present application was quite inappropriate and misconceived for their resolution. He referred to s.52 and 5.82. the ambit of which had not been fully explored in decided cases. He submitted there was strong argument that there had been a contravention of s.52 and persons who were directors were "involved" within the meaning of s.75B. He said, in effect, that a question arose as to whether a company deceived by its own agent who was in league with another company which introduced the deception nevertheless could claim damages pursuant to s.52 and s.82. He pointed out there was not complete identity of directors of the vendor companies and of the victim, Jet Corp. He made further submissions in relation to each of the respondents; particularly oa ban. | { 2 Renna od — ~ eR ATE erie ge eran a _ wows ae Sp - . ai a ae i Ra OE RS seca o — ron remem ep ~ eo 22. in relation to the application of Sent and Forshaw, he submitted it was important that in the second Wilson Agreement 3 million of ; the purchase price of 4.8 million was not payable until 20 July | 1983. Further, he submitted it should be noted that at the time Sent and Forshaw sold their interests in the group of companies | and entities they were aware the purchaser was unable to pay the purchase price in accordance with the Agreements; that this knowledge continued to prevail at the time of the making of Sales Agreement representations and the Pre-Settlement representations. He submitted that Sent and Forshaw at the date of the three Sales Agreements knew the representations were untrue and affected the reality of the purchase price payable under them. Then, he submitted, it was alleqed that Sent and Forshaw were aware at the time when the Sales Agreements were completed in December 1981 that such Agreements were going to be completed notwithstanding the misrepresentations; those misrepresentations were still being made and were still untrue. Further, notwithstanding all these matters, when it came to the time of completion of the Sales Agreements, they were receiving money due to them under the Wilson Agreements being monies which would not have been paid had it not been for the fact that the Sales Agreements had been entered into and completed. He submitted that the inabilitv of the purchasers to pay the amount due under the contracts, payment not being due well into the future, coupled with the fact that Sent and Forshaw knew what was proposed, viz. that misrepresentations would be made in order to achieve a sale and { |f { { || enable payment to them, was sufficient to make Sent and Forshaw REE Rr en nr ST re = aH ed ae ee ee eee ee er oe ee Let hee a re tienen my ee A techies meres Wma ea o itinerant tne — bet at ea ee) iene dorantol irate Gh bee lya seee te —tteenl tel ' eal ah tn Oe lene net Aa rover 23. parties to the contraventions by other persons. He submitted it clearly emerged from Yorke v. Lucas that the Court considered a person could he party to a contravention if he participated or concurred in or assented to the conduct; that here the Statement of Claim was to be read as implying a concurrence in or assent to the contravention by Sent and Forshaw. Further, he submitted, that it was sufficient to alleaqe that Sent and Forshaw had every reason to concur and assent in the misconduct; alternatively, the proceeding could not therebv be said to be incurably bad; there was sufficient in the Statement of Claim to meet the test in Yorke v. Lucas. Referring to an argument put on behalf of Sent and Forshaw, he submitted that performance of a contract containing misleading misrepresentations could constitute a4 restatement or reaffirmation of those misrepresentations in certain circumstances. As to submissions made on behalf of Collier and Hog, he argued that any investment of money made by them in Jet Corp was irrelevant. Whilst supporting the decision appealed, counsel submitted the Court sitting as a Full Court had not yet formulated its approach in dealing with appeals against interlocutory orders; that this would be a case where there might be such a formulation and statement of principle. He argued that a Full Court should be extremely reluctant to interfere in decisions of primary Judges on interlocutory ve cae tere me LN an Ane al Me Re er A ke ee ee en et oe et ete ee ene Brn eer TERT ae rE eR RR OH RYN Nn AY RR NR ap FQ et I = te ee ee ert ee At et lteter te bie 24. applications and should reverse those decisions only if thoroughly convinced they were wrond. Such appeals, he said, were an impediment to the efficient operation of the judicial system, caused delay, entailed expense and delayed the trial. Me. Hayes (following on the question of security for costs) submitted that 5.533 of the Companies (Victoria) Code did not apply to give this Court a discretion. He referred to T.N. Lucas Pty. Ltd. v. Centrepoint Freeholds Ptv, Ltd. (unreported, 30 March 1984, Federal Court of Australia) per Jenkinson J. He submitted there was nothing 1n s.79 of the Judiciarv Act 1903 which imported the provisions of s.533 for the purpose of exercising the discretion s.79 sets out. He referred to Bell Wholesale which was inconsistent with the decision of Jenkinson Jd. in T.N. Lucas Pty. Ltd. v. Centrepoint Freeholds Pty. Ltd. (supra) and significant as s.533 commenced with a predisposition in favour of granting security. He submitted that there was no predisposition to grant security where impecuniosity has been shown nor did Buckley support that notion. It was, he submitted, important that this was an appeal from an exercise of discretion as Courts have been reluctant to overturn such exercises of discretion. It was incorrect to say, he submitted, that his Honour had not reasonably arrived at the view that there should not be security. He said, upon the aspect of discretion, that the obligations placed upon the respondents under the Act were in the public interest. He submitted the matter should be regarded NX mat, se 5B i tate cr cl a a hentia Let A ee ee en ha nate ncaa Seated aeRO WER o Bean mo dae yardage, a en an SEE POLE Ee: PDP IPSN WO PENOLA Lege + i P ° i. tn Soman eee, -- nae cement et ee men ee enn ee et. 25. as one in which Jet Corp was suing for itself and it was covered by Order 28 r.3. In reply, it was arqued by Mr. Archibald that the Federal Court had expressly held in the Bell Wholesale case that the burden of raising material to show that an order for security would frustrate the litigation lay on the company rather than those who seek the security. My reference to arguments submitted by counsel indicates their lack of unanimity as to the conduct of the application before the learned primary Judge, i.e. there was a conflict of opinion as to whether the application to him was merely to strike out some or all of the Statement of Claim; or to dismiss the action entirely. Rather than attempt to resolve the conflict and having regard to the very complete arguments of all counsel, it will be more appropriate to consider the matter in respect of those respondents who did seek either dismissal or striking out of the action or Statement of Claim as if those forms of relief were sought in the alternative. Further, in my opinion, difficult questions of law are to be solved if and when the matter is heard. One such question may arise where directors are common to two companies, one company is guilty of false and misleading conduct implemented by its directors, and this is conveyed to the other company, possibly through a director who is complicit in the reprehensible design or who is a common director. The knowledge of a director or his actions may not eet Te * ron EN Tea Be + BRR ERT TE ere TE EP PTT TET IT a A A OT AA AO EE TTT, Oe STK AIM SB NE, 7 ay a mee Hy + , e . Pan Sele alert Manabi s era a Tee tt amet emmrmetmmneD Pliny he mS ae art Nl Al a cnt i ED peat te eenten te ile con eT aw 26. always be that of, or bind, the companies, but there could be an argument that the second company could not in that circumstance be misled because its directors who were aware of the falsity were not misled and, therefore, the conduct was not misleading. A question arises as to what activities might constitute heing "involved" in a contravention of Part 1V or Part V of the Act. In my view it has not been shown that the action should be dismissed against any of the respondents. However, there should stili be determined whether, if the matters alleded against Sent and Forshaw were proved, a prima facle case against them would not have been made out. This statement relates, of course, to the present state of the pleadings. The Statement of Claim does not allege any direct or sufficient participation in the alleged contravention of 8.52. Therefore, the contention in respect of Sent and Forshaw must be that conduct by them or either of them could amount _ to being "involved" within the meaning of s.75B of the Act in a contravention; and, hence, conduct which could amount to aiding, abetting, counselling or procuring within the meaning of that section. It follows that crucial to this submission is the meaning of "involved", and the sub-sections which expand it, in s.75B. The case of Yorke v. Lucas (supra) is informative upon this topic. In my opinion this authority shows that for Sent and Forshaw to be "involved" it must first be established that they knew of the "essential facts or matters" which constituted the contravention. Accepting as true for the purpose only of this decision the alleqation in OTT TS I LE IL IE TENT vor ST reer renege eae pe nn ae eterna pare aaa eee od selenelemeenendebeitienabnedand: 720d Oe Bet i | hee — cr ne te a nan ee neta se ttt 2 eta neelhaefi acs ne nena te OTe a Oa ORDER DOOR ES FST UT ET UNDUE nL OC OE Tots SOON an SR 90 OO aT CS Oe PS Oe OT Or NT Or 27. para.17 of the Statement of Claim that Sent and Forshaw knew, when Petres, Westwind and Dipson proposed to enter into the Sales Agreements, untrue representations were to be made and the Agreements would be completed, the first requirement is satisfied by the pleading. Yorke v. Lucas requires secondlv proof of some active participation or such an assent to the misconduct as might be regarded as participation. Sent and Forshaw were prior to 10 September 1981 directors of Electrum Acceptance, Electrum Finance, Petres, Westwind and, with Wilson, in effective control of those companies and entitled to the assets of those companies and the Schutt Unit Trust. The allegations in the Statement of Claim which, it appears to me, may be examined to determine if there could be an assertion of some relevant active participation by them, are - (i) Sent and Forshaw at the time the Sales Agreements were entered into knew that there had been representations and that thev were untrue. (i1) They knew that Wilson and then Petres, Westwind and Dipson (as purchasers) were unable to pay their respective shares of the purchase consideration payable respectivelv under the first and second Wilson Agreements. Lneted bale Dae 4h hae" ee -aceniomen hha cacnieehdendina Dit mee etameneneaetitaaen meine een neadetemeanaataaanemenenatmmenmeeanten a = ee - ' cat cathe at inet en da i te Re ee ee ee es et a deeaee oe. eld Slatted 28. (iii) At the time the Sales Aqreements were completed Sent and Forshaw knew of the inability to pay referred to in para.(il); knew of the misrepresentations and knew that even so the completion of the Aqreements was to take place. natn eer oh (iv) Sent and Forshaw, at the time of settlement of the Petres, Dipson and Westwind Sales Agreements accepted and received money Sata pursuant to the first and second Wilson Agreements. In Yorke v. Lucas, Du Cros v. Lambourne (1907) 1 K.B. 40 (Du Cros) was cited to support passive acquiescence as possibly sufficing to constitute aiding and abetting; but, on the facts of Du Cros, the aider and abettor had the capacity to control the principal offender. It involved, of course, a very different set of circumstances to that with which we are concerned: an appeilant, the owner of a motor vehicle, was convicted of driving a motor vehicle at a dangerous speed. Such a conviction, in the view of the Court of Appeal, could be justified because the vehicle was so driven by the "lady seated by his (the appellant's) side". The Court accepted that the appellant must have known the vehicle was being driven at a dangerous speed; that therefore, as he was the owner and in control of the J Aerie dine Paoteetaiieg lweraved Vata ndesttatiabnaitin Caiaal Chale remands sna diobeteetallona tiene Sart neten Yenticteahe Ee Te Ak tn RNS aA kaa ACE ue ON ae sees lterehint ire yi acebaae hor ccars or rrreess eter nn ~ an Le ATTY RT FEE STEN ee nA TT TO Ge hae ee e mais oan * ig! mbes orein taenteee, aw ee ee en te dhe mee nena nee Hal 29. @ vehicle, this was being done with his approval and consent, that he allowed this to happen when he could and ought to have prevented it. Smithers J. in Dennis v. Pight 11 F.L.R. 458 at p.462 accepted Du Cros as a case in which there was knowledae and allowance. Smithers J. said, in effect, the "allowance" was constituted by the knowledge; but he was not satisfied that the accused had knowledge that the facts constituting the offence were actually occurring so could not be said to assent to them. In Yorke v. Lucas the trial Judge found that the particular defendant, Lucas, acted in accordance with instructions, that he conscientiously passed on to the Plaintiff. Yorke, those pant tee tinh on meals ben ke canntinmnabn seb rmet Newel ileal ee ee ot ae Bee ees heme metsienle ain lita 6 instructions but himself was not aware nor had reason to suspect that the information so relayed was incorrect. in the instant case, in my opinion, the allegations if accepted would not be sufficient to enable the Court to say there was an allowance or permission by Sent and Forshaw to make. or participate in the FOV Ter San e TO Sar ae ae T OS making of, the misrepresentations. I have set out the allegations in order to consider whether they could be sufficient to support a finding of participation. I do not aaqree that e.g. the acceptance of money Sur, as part of the proceeds of the sale of the assets to Jet Corp can bbe per se be so described or that it may be inferred that accepting payments or receiving money pursuant to the Wilson Aqreements provides a "nexus" between Sent and Forshaw and the "aiding and te cetera taal mal abetting". It follows that in my opinion the Statement of Claim, so far as it applies to Sent and Forshaw, does not allege facts 2] PEN RI Y TEE OTT OLR T eT RE ET TY OF AE Fe RE NR ES OG OE RT Se RT HE mr NR rer i . ' ' ay wid ifs * toa eae er) et th ete we ae netted? emer ana eerie ahd eee heme ec tment ene eaten el wn Ate aA anlat eee ARS RIAN ne LSAT tL A neater enn Nn tenet me 30. 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 arquments that 1t 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 preciudes 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.q. 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 Judas, I am intruding into an area of practice and procedure; vet this trial, with so many groups of respondents, sued on different bases, may be along 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 then. It seems to me that it would be an injustice thata 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 or Forshaw. ERT FTN OTTER TIES oe re nin go oa ye cee eer ees TENE : ee rela sto tee itt ta a 1 . me " eee > fay 3 te pl antl a ae nn rn ented a nt kn lente alae Laan Etahntsnie nt eee rele anne ane hota 31. Mr. Chernov, senior counsel for Collier and Hogg, ) submitted in some detail that the Statement of Claim as presentlv 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 arqued 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 & en AI rite Lt PE Ld va Little Adal a ean a anna AS altel MET ttt ions Lane Adee eae de And ean el at ee inward be Co. He referred to Rubenstein and, 1n 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 llr.2(a) is toa 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 aword in a Statement of Claim would seek particulars of the facts or matters upon which reliance was to be placed for such an alleqation; 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' " PETE TT TTT Ne ET nial een he nenehted Lntmenaineatatantanneienemn ieee antasanetemnna maaiemmtiomenameta ie a as ' 32. 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 dutv 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 thev made or caused to be made the said representations knew them to be false.... SCEPC) En vO S0 SOE TSAIe OES EN DOT DS VON 1 SOT NY PO ea PL AN SNe Tere 7 a te eet 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 Se tabi ate ed ase ith 2t 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 cAI "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 - ANIC lait 5a tit eal tasotanee eee mean et beeen ae eens academia aiienien tn oemaeteniematedioem ete ST re te ner = yorrey s Po te as ant 0 ate ed Yt os tee i ee A nn tens At nt es rt inh dete eee oe neh ee ee eee remenee C a [ mektaihe patianntrae Same dete etna Kalbe aainedenntn Ae ee tee ete tee Lali kL Aiba ln tia nee ene Sa ot OPEL PE OTE PETIT MORETTI Te EF eT BOTT ET PT 33. "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. Espaaqne (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 1s adopted in para.54 against Hoqq 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 Huttiey also contended through their counsel, Mr. Hargrave, that paras.50 and 53 of the setehiaena neaemiedumamnan |. tel Ranta terete a eS a et ek Fone ae a etter ee re me " . e © . . + G - . " ' a SO an eee ter OO Oe UCU DEC DTTC USES OD MET WON UCC Se ON Son TROLLS ATS ak OMe RW Ce Se Oe: SEE | Oe SOE eee © a TY Te" De ee a | 34. 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 or 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 - Pe eG NTT Fn ee i ee enn = a ro ~.ot Yo yore > o ' a Eee 'f ' ots | i : nw nee ne arid ee ee ed tenn ne he Pad Lin Nite rntinn Ln ale Ae ene Settee neal mantel ade aie toe 35. "1. In this Order - (a) see. (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 1s 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) wee. the Court may order that applicant to qive 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 qive security for costs, the security shall be qiven in such manner, at such time, and in such terms cif 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 Territorv in all cases to which they are applicable." POE RFE AE TO FL NR Rt A ~ a ' ?; Ad es, alana tarwt State eerie ae beacon de atin a tne etn ees ant wallets . ee ee eat . na Te aL CNS ET WT SY Oe 4% € . . a 'oe 36. Sub-s. 533(1) of the Companies (Victoria) Code reads - "Where a corporation is plaintiff in anv action or other leqal 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 (Queenstand) Code to proceedings in this Court. The Reasons for Judgment 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 bea predisposition towards ordering security where there 1S 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 bv the plaintiff; particularly perhaps where at least the indications are (or ait has not been proved to the contrary) as here. the plaintiff, Jet Corp, wili not be able to pay all costs if any of Vs da del teat tet Aa ok mates ot Lae) nae anda al Rintee til eat etoile aA pein men ett B net oe em nbtelDfln ' a ae tal ial SO SRE Spe eemeepcetirtn o egge sereer nr rrr — on be ~ es Pe RR ow A we s aoe pee Stee at een li tn a a ee Oe snr aoe ha ee cd tp nantes PT rec Core TUr eT an On NUECES SNeNeT NEAT ed Hy i ' ~~ kL 4 ke ie te eerie ie ch OS | \ | | [ 37. the present respondents are successful. But Ido not find it See oR anna eT INveer Tere ent Tay - ' necessary to proceed upon the basis that the relevant legislation implicitly requires any such predisposition. The Reasons for Judament recite a most comprehensive AmnenelatAbbnenntymt 5 1! list of the matters with which the learned primarv 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 wt ee ee might be entitled to an order for security. Salterqate 1s 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 reqard was made on 4 December q 1983, i.e. after his Honour had aqiven judgment. His Honour was obviously assisted greatly in-the exercise of his discretion by reference to Co-operative Farmers' & Graziers' Direct Meat Supplv 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 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 ats best, uncertain and that if the defendants were successful in the action, the j | consider it was permissible to infer that a registered society | | | i | plaintiff might be unable to pay their costs." ; PEELE LEP a IN I LLY TEE TT LN SI ET LT EN TE ET LEA RIE AE RP Fe YAY SS RATES RO A tena ee eo Te wee ane te ee ee re ee ee 38. 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 1s so suing, at least partly. Thus, he should have taken this into account in the exercise of his discretion. He noted that a plaintiff. by the appointment of a receiver of his property, is not prevented from ewan et we bee We lik tee al Ne ate a Sa sen sn lh Sh) FST en perry rnin errr rere me ce gore a rr pe men ee —— aN et me nae tone st pees ; . : » - - Re et ne tent tlt nannies tite © i : | | | | | | | | « 39. 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 brouqht by a person against whoma receiving order has been made under the Bankruptcy Act, 1883, but who 1s 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.1l, part 5, ch.33, p.398: "The plaintiff will not be compelied to give security for costs merely because he 1s a pauper, or bankrupt, or insolvent, and this even in a qui tam action. And this rule applies where the plaintiff 1s 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, 1833; and from them it appears that a receiving order is not equivalent to an adjudication of bankruptcy; it does not divest the Gebtor 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 ainterpleaded and it was ordered that the amount in dispute he paid into Court by the defendant. An interpleader 1ssue was directed by a Master whereby Rush (or his we te a ee ee etl ee ee ee 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. SAT TNT MRE LIFT ET BL OPT EEO REE LU Een SR et eaten Reg re Mee =n | ee oe deen anaes Cen ee ee ee a ee, a Pea i ane y CeCe ota at] OO a re a [Cen tee pai enttntmene 6: > 40. Lindley L.J. said (p.554) that notwithstandinq 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 ¢. 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 inthe 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 claimed of the defendant) were sufficrent 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. Fa <a Aarne ee Ne ee ee ee neh tennis hate atm mat et wd Catt ternal maint Rattan matin at Sad Dae ib tke Me mi enema A cate arn OO mens fina ee a te er ee Panny - + - ee © ae ee ee et Ld) 41. 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 aave evidence that there was enough in hand to meet the defendants' costs anda 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 +.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, guite 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 nN ete Nea tet Cane Si inenslle wreayaababin nl etme thet et tlinne aside Eh shel te rnc ne ee ce iene nent etn wt ann nena aM, Ree ee ee Ne NTT TT TERT IES TY I EET I TILT ET SPT ETT PORE OEE IN TOE A A TREC ENE YEN EME TYEE ES ENA ON, OAR ° ° . . } Fes i SA TR te cates | | | ' t t f | h | : | menahet talib Matt Pn me 42. the custody of some or other of the respondents, 1f that bea 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 Dee Wee a he Oe 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 asa result the trial of the ENN SR ne SOs ED ee ee Oe ee issues between it and the respondents will be much longer and therefore more expensive than if the (qroups of) respondents were sued separately. Yet there is, as his Honour found, reason to believe that Jet Corp will be unable to pay the respondents' costs if required. Such an inability is, in the words of Megarry v.-C. in Pearson v. Naydler (supra) at p.906 - "J.e.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 0 hat ete le atc re nhac DL Ade nmtretalagetine Sith, 2h et a EE LA LE LE EAR NN TT ATE EIS AR ET OR RE POPPE POTEET MET PH cements thewyene dental Mgmnt a eee eran eR Ea Taha hy lent tN i le RN EL en te ke tl ell ete ed eae a hen nerealannlmahe deel taate vee 43. 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 ina trial where it has sued groups of respondents, thus increasing the costs of any one group where at any one time the hearing 1s not specifically being directed to the particular issues which concern that group, assumes greater significance. If to that 1s 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 _ ?P. 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. a terreno ee een cena Sener cement aCe nny mee BEERS By ares ue ' | -- nea teak n tment Milk Uhh atl, LAA rie and alec Dail demrae Slade chs p—biieiiatelhvemnch brides Memearenant Inet) DA Sataaedia pe liiaie chinese pita wnrl cate Ri Late A ements devumentere Le ne. sratuniatcd iuctelantnart et on . . at , . " o r ; os eh eee etait ae RO ee rere ET BO OE ORO TOC OSE | ee On NST RON TECO ONCE OL OOO Ee De 44. The Orders I propose are - The appeals as to the Statement of Claim of Sent and Forshaw be upheld. 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. The appeals of all other appellant respondents as to the Statement of Claim be dismissed. The appeals of all appellant respondents as to the application for security for costs be upheld. Security for the costs of each appellant respondent against whom this claim proceeds be provided by Jet Corp. The matter be remitted toa Judge of this Court to make appropriate orders for security for costs. TEE II A OT I TE LE TTT TT TE TEL eS TT RE TT ETS ET ET Lt A TNS ren a EET Ree etme oe ke mre a ne et te ta ee oe ll Shh he ent ttn placid? oon . wanes power erie ee de te re mt ewe tn in ween dirname a tS att ta a eS 8 Ean BN wna acest sd & . wa . , @ 45. 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 or its costs. -sr ify that this and the 4h cscading pages are a true copy of the zasons for Judgment herem of his Honour v Justice McGregor. idnne Coateg Associate Dated: o Tely I¢S4- Vv x7 Ay enrat dh meenttSeab iam teeth ee len tReet ce Sains SATE RA te ee Mae Let Oe dk Taga feal . 0 Oe ae Abhay SRST EELS IEE TEI A OPT ITI a EIT LTE SN NT I I I Neon oe per ete t 2 " vo ~ eof oF