Brookfield v McPherson's Limited [2005] FCA 962

FEDERAL COURT OF AUSTRALIA

Brookfield v McPherson's Limited [2005] FCA 962

PRACTICE AND PROCEDURE – application for summary judgment and application to strike out the respondent's notice of motion – where application for summary judgment based on the respondent's failure to enter a defence – whether respondent justified in not filing a defence in circumstances where the respondent has applied to strike out the proceedings.

Trade Practices Act 1974 (Cth) Corporations Act 2001 (Cth) Corporations Law IAN WALTER BROOKFIELD ABN 1247621465 and SEPTIC PRODUCTS AUSTRALIA PTY LTD (IN LIQUIDATION) v McPHERSON'S LIMITED ACN 004 068 419 SAD 505 of 2003 LANDER J 6 JULY 2005 ADELAIDE

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY SAD 505 OF 2003

BETWEEN: IAN WALTER BROOKFIELD ABN 1247621465 and SEPTIC PRODUCTS AUSTRALIA PTY LTD (IN LIQUIDATION)

APPLICANTS

AND: McPHERSON'S LIMITED ACN 004 068 419

RESPONDENT

JUDGE: LANDER J

DATE OF ORDER: 6 JULY 2005

WHERE MADE: ADELAIDE

THE COURT ORDERS THAT: 1. The orders sought in the applicants' notice of motion of 30 May 2005 are refused. 2. The orders sought in the applicants' notice of motion of 4 July 2005 are refused. 3. The applicants to pay the respondent's costs on an indemnity basis. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY SAD 505 OF 2003

BETWEEN: IAN WALTER BROOKFIELD ABN 1247621465 and SEPTIC PRODUCTS AUSTRALIA PTY LTD (IN LIQUIDATION)

APPLICANTS

AND: McPHERSON'S LIMITED ACN 004 068 419

RESPONDENT

JUDGE: LANDER J

DATE: 6 JULY 2005

PLACE: ADELAIDE

REASONS FOR JUDGMENT 1 There are two notices of motion for hearing before me today. Both were issued by the applicants. The first dated 30 May seeks summary judgment. The second issued on 4 July seeks to set aside the respondent's notice of motion which seeks to strike out these proceedings or, in the alternative, to adjourn the hearing of the respondent's notice of motion set for 27 July 2005. 2 These proceedings were commenced on 16 May 2003. It is necessary to have some knowledge of other proceedings (SG112 of 1993) in which the applicants have brought against Yevad Products Pty Ltd (Yevad) which is a wholly owned subsidiary of the respondent in these proceedings (the first proceedings). 3 In the first proceedings the applicants sought damages against Yevad for contraventions of the Trade Practices Act 1974 (Cth) and in relation to other causes of action, all relating to a claim that Yevad had supplied the applicants with faulty pumps over a period of time. The claim failed in respect of all causes of action pleaded and judgment was accordingly entered for the respondent, Yevad. The applicants appealed but the appeal was dismissed. Subsequently, the applicants claimed that Yevad had failed to discharge its obligations to give complete and proper discovery in those proceedings. It sought orders setting aside the judgment of the trial judge and sought an order for a new trial. 4 On 9 September 2004 I delivered reasons for judgment upholding the applicants' claim that Yevad had failed to make proper discovery. After hearing the parties in December 2004 I set aside the judgment entered in favour of Yevad by the trial judge and ordered a new trial. Yevad has appealed against the orders made by me. Oral submissions have been made in the appeal and written submissions are still being exchanged. I am told that it is likely that judgment will be reserved by the Full Court later next week. 5 These proceedings were commenced prior to my hearing the first proceedings between the applicants and Yevad. The first proceedings were commenced in late 1993 when the respondent in those proceedings was called Davey Products Pty Ltd. Davey Products Pty Ltd changed its name to Yevad Products Pty Ltd in about March 1995. Yevad has always been a wholly owned subsidiary of the respondent in these proceedings, McPherson's. Yevad, which was still then known as Davey Products Pty Ltd, and Davey Products New Zealand Ltd, which was also a subsidiary of McPherson's, sold their businesses and McPherson's sold land owned by it in Victoria to GUD Holdings Ltd or a nominated subsidiary of that company in March 1995. 6 It is not clear, on the evidence, what the sale price of Yevad's business was. It does appear clear enough that the sale of the two businesses and the land brought a sum in the order of $29 million. Of that sum of $29 million, the sale price of Yevad's business would have been payable, one would suspect, to Yevad. It was after that sale that Davey Products Pty Ltd changed its name to Yevad Products Pty Ltd. At the same time, the subsidiary of GUD Holdings Ltd, which purchased Yevad's assets, changed its name to Davey Products Pty Ltd. As part of the sale the business records of Yevad passed to Davey Products Pty Ltd. Of course, Yevad remained the respondent in the first proceedings. 7 After the sale of its business, Yevad ceased to trade. However, it remained a wholly owned subsidiary of the respondent, McPherson's. McPherson's, as a sole shareholder of Yevad, appointed directors to Yevad. At least one of those directors and probably two were also employees of McPherson's. After the sale of its business Yevad had no employees. Either Yevad's directors or employees of McPherson's undertook the responsibility of causing Yevad to defend the first proceedings. Part of that responsibility was to provide discovery in accordance with Yevad's obligations under the law and under the Federal Court Rules. 8 As I have already mentioned, after the sale of Yevad's business, the business records of Yevad passed to Davey Products Pty Ltd. It was part of the agreement for sale between Yevad and GUD Holdings that GUD Holdings Ltd or its nominated subsidiary, if that subsidiary became the owner of Yevad's business, would provide McPherson's with access to the necessary documents to enable McPherson's to cause Yevad to make discovery. As I already said, I found in those proceedings that Yevad failed to give full and complete discovery. I did not find that the failure was deliberate, but I did find that the failure remained unexplained. 9 In the original application filed in these proceedings, the applicant sought a declaration that McPherson's knowingly engaged in conduct which breached the 'companies' code for "corporate governance"' and that McPherson's, via its board of directors, was knowingly reckless and negligent with its fiduciary duties. It gave particulars of that second claim. 10 It also sought declarations that McPherson's had breached or contravened a number of sections of the Corporations Law and the Corporations Act 2001 (Cth) (the Corporations Act),and sought damages under the Corporations Act. Essentially, as I understand it, apart from particular complaints in relation to breaches of the Corporations Law or the Corporations Act, the applicants claim that McPherson's have been negligent or in breach of their fiduciary duties by failing to cause Yevad to make proper discovery in the first proceedings. As I understand the claim, the applicants say that McPherson's is therefore liable to it for the damage that the applicants suffered as a consequence of Yevad's failure to give proper discovery. 11 At the same time as the applicants brought these proceedings, they filed an affidavit in support of the proceedings and a statement of claim. McPherson's, upon being served with the proceedings, filed and served a notice of motion dated 28 May 2003 seeking an order that the action be dismissed and that the first applicant, Mr Brookfield, pay McPherson's costs of the notice of motion. That application came on before Mansfield J who, on 4 November 2003, delivered reasons in which he concluded at [22]: 'I accordingly decline to make the orders sought on the present notice of motion. I will not formally dismiss the motion as it may be that McPherson's will seek at a later point in the proceedings to attack the statement of claim or parts of the statement of claim on other grounds. I will therefore simply adjourn the notice of motion to a date to be fixed. I suspect that the parties, in the light of these reasons, will simply await the outcome of Mr Brookfield's application to set aside the principle judgment. Depending on the outcome of that application, it may be determined that there is no point in the current proceedings being maintained.' 12 The conclusion in the reasons is a little unusual. It suggests that the application was neither granted nor refused but, on the motion of the Court, adjourned. However, attached to the reasons was an order in the following terms: '(1) The motion to summarily dismiss the application be refused.' 13 That order seems to me to be inconsistent with the conclusion in the reasons. I have searched the file. There is no formal order of the kind referred to in the order attached to the reasons. There is no formal order of the Court of the kind there referred to. I think it is safe to proceed upon the basis that no order of that kind was made and the matter was simply adjourned. 14 In his reasons for judgment in relation to the application by McPherson's to dismiss the action, Mansfield J dealt with the applicants' status and standing, then went on to say, at [18]: 'As I understand his claim, there are two types of loss which he seeks to recover. The first is a loss which he allegedly suffered by McPherson's alleged complicity in Yevad's conduct in the principle action, namely the cost of and related to having to set aside the principal judgment. I consider in that regard that it is arguable that Mr Brookfield now has a claim against McPherson's in his own right. Those costs might also include the costs incurred in resisting attempts to enforce the costs order made against him in the principal action.' 15 Mr Brookfield, the first applicant, who appeared unrepresented and I think appeared for the second applicant, in the course of his argument put to me that the primary judge had found that the applicants had an arguable cause of action in that McPherson's were complicit with Yevad in relation to Yevad's failure to give proper discovery. I will return to that shortly. 16 On 18 January 2005 this matter first came before me. I directed the applicants to file any amended application and statement of claim that they may be advised within 14 days. On 31 January 2005 an affidavit was filed setting out some of the facts to which I have already referred and also some of the evidence which was given in the proceedings before me to set aside the judgment in the first proceedings. On 15 March 2005, outside the time allowed, but not so as to prejudice the respondent, an amended application was filed in not relevantly different terms to the original application. On the same day an amended statement of claim was also filed, again in not relevantly different terms to the original statement of claim. 17 The matter came before me again on 21 March 2005 when, after some argument, and against submissions made by Mr Wells QC, who then appeared for the respondent, I directed that the applicants file any further proposed amended application and any further proposed amended statement of claim within 28 days. I directed the parties to file any affidavits upon which they intended to rely within certain periods of time and directed them to advise each other if they wished to cross-examine any of the deponents to the affidavits upon which their opponent or opponents wished to rely. 18 The purpose of those directions was to enable a procedural structure to be put in place to hear the respondent's application to strike out the proceeding on the notice of motion of 28 May 2003 which, as I say, on my reading of his Honour's reasons, had been previously adjourned. At the same time, I set the matter for hearing on 27 July 2005. Thus it was that the parties had four months notice of the hearing and the purpose of that hearing. 19 In my opinion, the parties could not have been in any doubt that the matter of whether the applicants' application in its original form, amended form, or proposed form, or their statement of claim in its original form, amended form or proposed form, disclosed any cause of action needed to be dealt with before any other matter was to be addressed in the proceedings. 20 On 30 May 2005 the applicants filed a notice of motion seeking summary judgment in the action. In doing so, they relied upon an affidavit of Mr Brookfield, affirmed on the same date, who said that no defence had been served in the proceedings and no affidavit filed in opposition to the amended application and amended statement of claim. That is the first notice of motion before me today. 21 That application can be dealt with quite quickly. It was always the Court's intention that the adequacy of the applicants' pleadings and, indeed, whether the applicants had brought an application which disclosed any cause of action would be dealt with prior to the respondent filing any defence. That has been assumed ever since the respondent filed its notice of motion on 28 May 2003. Mansfield J assumed so much at the time of the first hearing of the respondent's notice of motion which was heard in August 2003. There can be no question that the applicants' application for summary judgment, based upon the respondent's failure to enter a defence, must be dismissed. 22 However, another ground was raised in the affidavit accompanying the notice of motion of 30 May 2005. It was said by the deponent, Mr Brookfield, that the respondent has no defence to the action and there is no arguable case to be tried. Before addressing the cause of action which Mr Brookfield relied upon today for that assertion, it is necessary to note that the applicants' application and the applicants' statement of claim in its original form, their amended form and their proposed form do not raise the cause of action referred to by Mansfield J in his reasons given on 4 November 2003. 23 There is no claim that McPherson's were complicit with Yevad to cause harm to the applicants. Today it was asserted that the applicant should have summary judgment based upon a cause of action in negligence. There are short answers to that proposition. First, it is not clear from the application that a cause of action in negligence is raised. Secondly, if a cause of action is raised, no duty of care is pleaded. Thirdly, if such a cause of action is raised and if it may be inferred that a duty of care is pleaded, it is not pleaded to whom the duty of care is owed. Fourthly, there is no plea that the duty of care has been breached. Fifthly, there is no claim that the breach of the duty of care caused damage. 24 No reliance was put upon any of the other causes of action which are said to be raised in the various applications and statements of claim. As I have said, today Mr Brookfield only relied upon the cause of action in negligence. Therefore, it is not even clear that the cause of action relied upon is within the accrued jurisdiction of the Court. In my opinion, on the state of the pleadings, there can be no doubt that the application for summary judgment must be dismissed. As the pleading stands, it is so defective in relation to the cause of action relied upon that in that respect it might itself be liable to be struck out although I make no decision in that regard. That ground for summary judgment must also be dismissed. 25 It follows that there must be an order dismissing the applicants' notice of motion for summary judgment filed in 30 May 2003. On 8 June 2005 McPherson's filed what is described as an amended notice of motion seeking the following relief: '1. That the within action be dismissed; 1A Alternatively that: 1.1 the Application dated 15 May 2003 and the amendments thereto, and; 1.2 the Statement of Claim and the amendments thereto be struckout.' It also sought an order for costs. 26 I assume that that notice of motion was filed out of an abundance of caution in case it be said that the previous notice of motion had been finally dealt with on 4 November 2003. I am not sure that the relief sought in paragraph 1A is an alternative to paragraph 1. If the applicants' application and statement of claim were both struck out that would have the effect I would have thought that the application is dismissed which is the relief sought in paragraph 1. 27 If paragraph 1A had only sought the striking out of the statement of claim then that of course would have been an alternative to that in paragraph 1. However, that might be a matter to consider later. Two days ago, on 4 July 2005, the applicants filed yet another notice of motion seeking orders that the amended notice of motion filed by the respondent on 8 June 2003 be dismissed and that the hearing set down for the amended notice of motion of 27 July be vacated. That second notice of motion filed by the applicants is also before me today. 28 It seemed to me necessary to list both notices of motion so that the parties can understand whether McPherson's application to strike out the applicants' proceeding pursuant to the notice of motion of 28 May 2003 or the amended notice of motion of 8 June 2005 should proceed on 27 July 2005. I have already dealt with the first notice of motion which I have said should be dismissed. In my opinion, the applicants' application to strike out McPherson's amended notice of motion is misconceived. The first matter which must be addressed in these proceedings is whether the application and or the statement of claim disclose any cause of action. 29 All directions since January of this year have been made with the intent and for the purpose of determining that preliminary issue. McPherson's, and I can understand why, is content to argue its notices of motion without adducing any evidence. It is entitled to approach the hearing of those notices of motion that way. There is no reason disclosed as to why the amended notice of motion should be struck out. There is no reason disclosed why the hearing of either of McPherson's notices of motion should be further adjourned. I refuse, therefore, to strike out the amended notice of motion. The orders sought in the applicants' notice of motion on 4 July are refused. 30 In particular, I refuse to adjourn the hearing of McPherson's applications to strike out the applicants' applications and the applicants' statement of claim. Those matters will remain listed to be heard on 27 July 2005. During the hearing of these notices of motion, I pointed out to Mr Brookfield that the amended application and the amended statement of claim filed on 20 April 2005 may still be seriously defective in form. He asked for permission to file yet a further amended application and an amended statement of claim. I did not give him or the applicants leave to do so. 31 I had made it clear on the last occasion that the documents which were filed on 20 April 2005 should be the applicants' final attempt to articulate in the two documents the appropriate causes of action. Mr Brookfield said that the applicants could file further documents by Monday next week, that is Monday 11 July 2005. In the end result, Mr Brookfield indicated that the applicants would provide my associate and McPherson's solicitors with a further proposed amended application and a further proposed amended statement of claim. I made it clear to him that, if those documents were provided to McPherson's solicitors and my associate, he would have to address me on 27 July as to why those documents should be addressed on the respondent's notices of motion. 32 In the end result, the orders will be that the orders sought in the applicants' notice of motion of 30 May 2005 are refused. The orders sought in the applicants' notice of motion of