New South Wales Court of Appeal CITATION : Mace Neufeld & Anor. v. OZ-US Film Productions Pty. Ltd. (In Liquiation) [2002] NSWCA 335 FILE NUMBER(S) : CA 40979/01 HEARING DATE(S) : 2 October 2002 JUDGMENT DATE : 2 October 2002 Mace Neufeld - first claimant PARTIES : Mace Neufeld Productions Inc. - second claimant OZ-US Film Productions Pty. Ltd. (In Liquidation) - respondent JUDGMENT OF : Spigelman CJ at 1, 32, 34; Hodgson JA at 2; Beazley JA at 33 LOWER COURT JURISDICTION : Supreme Court - Equity Division LOWER COURT ED 3922/97 FILE NUMBER(S) : LOWER COURT Burchett AJ JUDICIAL OFFICER : COUNSEL : Mr. I Wales SC with Mr. M. Ashurst for claimants Mr. P. Brereton SC with Mr. R. Brender for opponent SOLICITORS : Noyce Legal, Parramatta for claimants Cutler Hughes & Harris, Sydney for opponent CATCHWORDS : CONFLICT OF LAWS - PRACTICE AND PROCEDURE - Service in California - Application to set aside service or decline jurisdiction - Whether USA defendants 'properly joined' - Whether substantive and limitation law of California applied - Whether cause of action statute-barred under California law - Applicability and effect of General Steel test. LEGISLATION CITED : Supreme Court Rules Pt.10.r.1A, r.6A, Pt. 11.r.8 Agar v. Hyde (2000) 201 CLR 552 General Steel Industries Inc. v. Commissioner for Railways (NSW) (1964) 112 CLR 125 CASES CITED: John Pfeiffer Pty. Ltd. v. Rogerson (2000) 203 CLR 503 Regie Nationale des Usines Renault SA v Zhang (2002) 187 ALR 1 US Surgical Corporation v. Hospital Products International Pty. Ltd. [1982] 2 NSWLR 766 Wardley Australia v. The State of Western Australia (1992) 175 CLR 514 DECISION : Leave to appeal refused with costs. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40979/01 ED 3922/97 SPIGELMAN CJ BEAZLEY JA HODGSON JA Wednesday 2 October 2002 MACE NEUFELD & ANOR. V. OZ-UZ FILM PRODUCTIONS PTY. LTD. (IN LIQUIDATION) Judgment 1 SPIGELMAN CJ: I invite Hodgson JA to deliver the first judgment. 2 HODGSON JA: In September 1997 the opponent commenced proceedings in the Equity Division of the Supreme Court of New South Wales by a statement of claim against Simon Heath (Heath), Hanline Pty Ltd (Hanline) and the claimants Mace Neufeld (Neufeld) and Mace Neufeld Productions Inc (MN Productions). The two claimants are, respectively, a citizen of the United States of America and a company incorporated in the State of California. Subsequently, these proceedings were amended to add a fifth defendant, Sanwa Australia Pty Ltd (Sanwa). The opponent alleged that the claimants had breached a fiduciary duty owed to the opponent, or had received proceeds of breaches of fiduciary duty by Heath and Hanline, with knowledge of those breaches, or had knowingly assisted Heath and Hanline in their breaches of fiduciary duty. 3 The claimants were served with the originating process in California in reliance on Pt10 r1A(1)(i) of the Supreme Court Rules. The claimants applied pursuant to Pt10 r6A(2) and Pt11 r8 to set aside the originating process and/or its service and/or to have the Court decline to exercise jurisdiction. The relevant rules are in the following terms: Part 10 1A(1) Subject to rule 2 and rule 2A, originating process may be served outside Australia in the following cases: (a) where the proceedings are founded on a cause of action arising in the State; (b) where the proceedings are founded on a breach in the State of a contract wherever made, whether or not the breach is preceded or accompanied by a breach wherever occurring that renders impossible the performance of any part of the contract which ought to be performed in the State; (c) where the subject matter of the proceedings is a contract and the contract: (i) is made in the State; (ii) is made on behalf of the person to be served by or through an agent carrying on business or residing in the State; (iii) is governed by the law of the State; or (iv) is one a breach of which was committed in the State; (d) where the proceedings are founded on a tort committed in the State; (e) where the proceedings, wholly or partly, are founded on, or are for the recovery of damages in respect of, damage suffered in the State caused by a tortious act or omission wherever occurring; (f) where the proceedings are for contribution or indemnity in respect of a liability enforceable by proceedings in the Court; (g) where the person to be served is domiciled or ordinarily resident in the State; (h) where the proceedings are proceedings in respect of which the person to be served has submitted or agreed to submit to the jurisdiction of the Court; (i) where the proceedings are properly brought against a person served or to be served in the State and the person to be served outside the State is properly joined as a party to the proceedings; (j) where, in respect of a person other than the person to be served: (i) the proceedings are proceedings to which any of paragraphs (a) to (f) of subsection (1) of section 11 of the Service and Execution of Process Act 1901 applies; (ii) the proceedings are properly brought against him; and (iii) originating process in the proceedings has been or is to be served on him under that Act or he has entered an appearance to originating process in the proceedings or liberty to proceed against him has been given in the proceedings under section 11 of that Act; (k) where the subject matter of the proceedings, so far as concerns the person to be served, is property in the State; (l) where the proceedings are for the perpetuation of testimony relating to property in the State; (m) where the proceedings concern the construction, effect or enforcement of an Imperial Act or Commonwealth Act, or a regulation or other instrument having or purporting to have effect under such an Act, affecting property in the State; (n) where the proceedings are for the construction, rectification, setting aside or enforcement of a deed, will or other instrument or of a contract, obligation or liability, affecting property in the State; (o) where the proceedings are for an injunction as to anything to be done in the State or against the doing of any act in the State, whether damages are also sought or not; (p) where the proceedings are for the administration of the estate of a person who dies domiciled in the State or are for relief which might be granted in proceedings for administration of such an estate; (q) where the proceedings are for the execution of trusts which are governed by the law of the State, or are for relief which might be granted in proceedings for the execution of such trusts; (r) where the proceedings affect the person to be served in respect of his membership of a corporation incorporated in the State or of an association formed or carrying on any part of its affairs in the State; (s) where the proceedings concern the construction, effect or enforcement of an Act or a regulation or other instrument having or purporting to have effect under an Act; (t) where the proceedings concern the effect or enforcement of an executive, ministerial or administrative act done or purporting to be done under an Act or regulation or other instrument having or purporting to have effect under an Act; (u) where the proceedings: (i) relate to an arbitration held in, or governed by the law of, the State; or (ii) are brought to enforce in the State an arbitral award wherever made; or (iii) are for orders necessary or convenient for carrying into effect in the State the whole or any part of an arbitral award wherever made; (v) where the proceedings are brought to enforce in the State a judgment wherever given; (w) where the proceedings are for relief relating to the custody, guardianship, protection or welfare of a minor, whether or not he is in the State, which relief the Court has, apart from service, jurisdiction to grant; or (x) where the proceedings, so far as concerns the person to be served, fall partly within one or more of the foregoing paragraphs and fall, as to the residue, within one or more of the others of the foregoing paragraphs. Part 10 6A(2) Without limiting subrule (1), the Court may make an order under this rule on the ground: (a) that the service of the originating process is not authorised by these rules; or (b) that this Court is an inappropriate forum for the trial of the proceedings. Part 11 8(1) The Court may, on application made by a defendant to any originating process on notice of motion filed within the time fixed by subrule (2), by order: (a) set aside the originating process; (b) set aside the service of the originating process on the defendant; (c) declare that the originating process has not been duly served on the defendant; (d) discharge any order giving leave to serve the originating process outside the State or confirming service of the originating process outside the State; (e) discharge any order extending the validity for service of the originating process; (f) protect or release: (i) property seized, or threatened with seizure, in the proceedings; or (ii) property subject to an order restraining its disposition or disposal or in relation to which such an order is sought; (g) declare that the Court has no jurisdiction over the defendant in respect of the subject matter of the proceedings; (h) decline in its discretion to exercise its jurisdiction in the proceedings; (i) grant such other relief as it thinks appropriate. 4 The claimants' motion was dismissed by Master McLaughlin. The claimants appealed to a judge, and their appeal was dismissed by Burchett AJ on 16 November 2001. The claimants now seek leave to appeal from that decision. 5 The amended statement of claim alleges inter alia that between 1987 and 1989 Heath was a director of the opponent and Neufeld was the opponent's agent to negotiate with United States motion picture distribution companies for the distribution of certain films; that both Heath and his company Hanline, and Neufeld and his company MN Productions, pursued for themselves business opportunities which should have been pursued for the opponent, thereby committing breaches of fiduciary duty owed to the opponent, or being knowingly concerned in such breaches; and that in 1990, Heath, Neufeld and MN Productions sued Sanwa and others in California in relation to those business opportunities and obtained settlement of those proceedings. The amended statement of claim alleges that the defendants are liable to account to the opponent for the settlement monies. 6 It appears that the settlement occurred in September 1992, and that the settlement monies amounting to several million dollars were paid over at that time. There has been no accounting for those moneys to the opponent. 7 In the application before Master McLaughlin, there was evidence led by the claimants from an expert in Californian law, Mr Talbot-Stern, that the proceedings were statute barred according to Californian law, in that the relevant limitation period was four years after accrual of the cause of action. The claimants also led evidence from their solicitor that on about 8 May 2000 he had a discussion with the opponent's solicitor, Peter Carlisle, concerning the period of limitation that applied in California, in the following terms: 5. I said "I am still trying to get an expert's opinion on the Limitations point". Mr. Carlisle said "I told you before that it is definitely statute barred it is quite clear". "I have a report from an expert who is entitled to practice law in New South Wales and in California who says that the Plaintiffs claim is statute barred in California". 8 Mr Carlisle was still the opponent's solicitor at the time of the application before Master McLaughlin, but he did not give evidence and no expert report was tendered by the opponent. 9 Mr Talbot-Stern was cross-examined before Master McLaughlin. He conceded that the opponent's cause of action against the claimants could, on one view, fall within the provisions of the Californian Code relating to fraud, in respect of which the relevant time period was three years but the cause of action was not "deemed to have accrued until the discovery, by the aggrieved party of the facts constituting the fraud". He was asked to assume that the opponent was, by administrative error on the part of the Australian Securities Commission, deregistered in September 1993 and not restored to the Register until 1997. It was put to him that there would in California be a strong argument that the limitation period would not run during that period by reason of a doctrine called equitable tolling. He conceded that this was arguable. 10 The following questions and answers occurred in re-examination: WALES: Q. You were asked questions based upon certain assumptions. You have expressed the view that it is section 343 of the Californian Procedural Code which applies to a breach of fiduciary duty? A. Yes. Q. Questions were put to you about a doctrine described as equitable tolling? A. Yes. Q. Assume that for a period of time between 1993 and 1997 the plaintiff was, for whatever reason, deregistered, but assume further that for the entirety of that period it was open to any of its directors, shareholders or any other interested persons to make an application to the Court to reinstate it. Having considered that fact, what is your opinion about whether the conclusion you expressed in your report remains correct or needs to be modified in some fashion? A. The answer is, I believe the conclusion in my report remains. 11 There was further cross-examination as follows: BRERETON: You were asked whether on certain assumptions you thought a Californian court would toll a statute, on those assumptions, and you answered, on balance you thought a Californian court would not allow the deregistration to cause a toll. May I take it when you said ",on balance" that acknowledged and allowed for the answer you had given me earlier, that while that was your opinion on balance, the other view was certainly one which was arguable in a Californian court? A. I said ,"on balance" because nothing in life is absolute and I think that you have done a good job of framing the issues which can be ventilated, and I wouldn't want to preclude that. What I meant, on balance is, on recognising your arguments, I do not believe that that would be deciding on this issue. Q. That said, you would acknowledge that there are legitimate professional views to the contrary of yours in that respect? A. On that particular issue, I don't know whether there would be, because I have some difficulties on the Australian side of what deregistration means. I do know on the American side I wouldn't have much difficulty and would depend upon how clever you would be in arguing the Australian side under American law. Q. And it would be fairly fundamental to the ultimate decision with the American law, just how the effect of deregistration under Australian law was interpreted? A. To answer that properly I would have to go through and analyse each potential cause of action that a so-called deregistered Australian company could have, or its principals over in Australia, or their rights to prosecute a case in the US, and that is the most difficult part. I believe that that most probably, even if not in Australia, would have standing to bring a case in the US. Q. The question was, that in saying that it would depend upon how cleverly the argument about deregistration in Australia was presented, that was a recognition on your part, was it not, that the effect of deregistration under Australian law, as distinct from under the law of California, would be a very important factor in the decision-making process of the Californian Court on the tolling issue? A. Would be an important factor. I wouldn't think - but it wouldn't necessarily be the BV only or the deciding factor. Q. And you would not wish to recant your evidence in cross- examination about the proposition that tolling would be applied in those circumstances, is certainly arguable under Californian law? A. I would answer that in the context of my prior answer to the prior question. Q. Namely, that it is arguable under Californian law? A. Something in my mind is arguable is, if you make the argument and it is not subject to what I would call a summary judgment, in effect showing out of court to a judge, he will consider it on the merits of the argument and yes, I do think he would consider your arguments. Q. And not throw it out on the summary judgment? A. Yes. 12 It seems to be common ground that the opponent was in fact deregistered between 1993 and 1997. 13 Before Master McLaughlin it was contended by the claimants that Pt10 r1A(i) was not satisfied, because the proceedings against Hanline and Sanwa, which were served in New South Wales, were not properly brought against them, and the claimants were not properly joined because the proceedings against them were an abuse of process and were bound to fail. It was not submitted before Master McLaughlin, and has not been submitted before us, that the claimants were entitled to relief on the basis that New South Wales was not a convenient forum. 14 Master McLaughlin held that the proceedings were properly brought against Hanline and Sanwa, and this is not now challenged. Master McLaughlin held that the joinder of the claimants was proper within Pt8 r2, and that the proceedings were not an abuse of process. 15 As to whether the proceedings were bound to fail, the opponent submitted to Master McLaughlin that it was arguable that the applicable substantive law was that of New South Wales, that the applicable limitation law was that of New South Wales and that, in any event, the limitation law of California would not bar the proceedings. 16 Master McLaughlin held that it was arguable that, once a defendant was amenable to the in personam jurisdiction of the Supreme Court, the defendant was subject to the equitable principles of lex fori, and that the court would in any event apply the law of the forum on the limitation issue. Further, he was not satisfied on the General Steel test (see General Steel Industries Inc. v. Commissioner for Railways (NSW) (1964) 112 CLR 125) that "the law of California would reject a tolling of the relevant limitation period during the period that the opponent was deregistered". 17 On appeal from Master McLaughlin, Burchett AJ agreed with Master McLaughlin on all these issues and, in particular, he held that Master McLaughlin did not err when he decided that he was not satisfied on the General Steel test that the matter was statute barred under the law of California. 18 The claimants seek leave to appeal on the following grounds: 1. His Honour erred in dismissing the Appellants appeal of the decision of Master McLaughlin dated 20 April 2001. 2. His Honour erred in finding that the Appellants had been properly joined as parties to the proceedings for the purposes of Pt 10 r I A (i). 3. His Honour erred by finding that the appropriate test of whether the action was maintainable in California was whether it was "arguable". 4. His Honour erred in failing to take into consideration the fact that the proceedings were statute barred in California. 5. His Honour erred in holding that, under the law of California, the relevant limitation provisions were procedural rather than substantive. 6. His Honour erred in holding that the decision of the High Court in John Pfeiffer Pty Limited v Rogerson (2000) 74 ALJR was irrelevant to the questions of conflicts of international law. 19 It is common ground that, insofar as Master McLaughlin and Burchett AJ held that, even if the substantive law of California applied, the relevant limitation law was that of New South Wales. This was shown to be wrong by the subsequent decision of the High Court of Australia in Regie Nationale des Usines Renault SA v Zhang (2002) 187 ALR 1, which made it clear that the principles applied in John Pfeiffer Pty Ltd v Rogerson (2000) 203 CLR 503 were not limited to various States of Australia but applied in the international sphere. 20 Mr Wales QC, for the claimant, referred us to Agar v Hyde (2000) 201 CLR 552, and in particular the joint judgment of Gaudron, McHugh, Gummow and Hayne JJ. 21 Their Honours noted that the question of whether Pt10 r1A applied, so as to permit service outside Australia, required attention to the way a plaintiff's claims were framed and not an assessment of their strength, although other considerations could arise under paragraph (i) in relation to whether proceedings are "properly brought" or "each party is properly joined". They went on to consider principles which applied where an application to set aside service, or to decline to exercise jurisdiction, was made, either on the basis of inappropriate forum or insufficient prospects of success, concluding as follows in relation to the latter issue: 60. For these reasons, the same test should be applied in deciding whether originating process served outside Australia makes claims which have such poor prospects of success that the proceeding should not go to trial as is applied in an application for summary judgment by a defendant served locally. 22 Mr Wales submitted that that paragraph appeared to give little effect to the discretion given by Pt11 r8(h), but he did not submit even formally that that paragraph was wrong. 23 He submitted that the question under Pt10 r1(i), as to whether the plaintiffs were properly joined, was not limited to the questions arising under Pt8 of the Supreme Court Rules concerning joinder of New South Wales defendants, but required that there be taken into account that there was a foreign defendant being joined, that the applicable law was foreign law, issues of inconvenience, and the like. Further, he submitted, the same considerations came into account in the question of whether service should be set aside, or whether the Court should decline to exercise its jurisdiction under Pt11 r8(i). 24 He submitted that, even accepting that the General Steel test was appropriate, Master McLaughlin and Burchett AJ erred in not finding that Californian law was applicable, and that the action was barred by Californian limitation law. He referred to the decision of McLelland J in the US Surgical Corporation v Hospital Products International Pty Limited [1982] 2 NSWLR 766 at 796-7, which was relied upon by the opponent to suggest that New South Wales substantive law was applicable; and he submitted that this decision indicated that in a case where the defendant, against whom a breach of fiduciary duty was alleged, had no connection with New South Wales apart from one arising entirely from events in California, it was the Californian law concerning fiduciary obligations which would apply. He pointed out that there was no allegation, or evidence, as to what the Californian law was. 25 He submitted that Master McLaughlin and Burchett AJ erred in not deciding the question of the effect of Californian limitation law in favour of the claimants. Despite the expert's concession that the contrary proposition was arguable, the only expert witness called expressed the firm view that the action was barred. In addition, there was the plain admission by the opponent's solicitors, coupled with the expert opinion referred to in that admission. Although it had been suggested in submissions from the opponent before Master McLaughlin that in the conversation the opponent's solicitor was referring to the position if a case was then commenced in California, that was not the apparent meaning of the conversation, the solicitor was not called to say this, and the opponent's expert opinion was not tendered. In all those circumstances, the correct result was plain, and the question should, even on the General Steel approach, have been decided in favour of the claimants. 26 In my opinion, there is no need for this Court to decide whether the opponent has an arguable case that New South Wales substantive law applies. Assuming that Californian law applies, there was, in my opinion, no need for the opponent to allege in the statement of claim, or to lead evidence in the application, as to what was the Californian law concerning fiduciary obligations, in view of the presumption that foreign law is the same as New South Wales law and in circumstances where there was no reason to think Californian law was relevantly different from New South Wales law. 27 As regards (to) the limitation law, there is force in Mr Wales' submission concerning the meaning of the conversation, in circumstances where the opponent's solicitor was not called and the expert report not tendered; but the conversation did only amount to an informal admission, and it was open to the opponent and to Master McLaughlin to rely on the concession made by the claimants' expert that the tolling point was arguable and that the claim would not be struck out in California on a summary judgment. 28 In order to succeed on an appeal, the claimants would have to show error in at least one of two decisions, both having a substantial element of discretion or individual judgment. Firstly, a decision that the tolling point was arguable. Secondly, a decision not to embark on the final decision of the point on the basis that the correct position was clear. I am not satisfied that the claimants have identified any error by Master McLaughlin in either of those decisions. A fortiori, I am not satisfied that the Burchett AJ erred in not finding that Master McLaughlin erred. 29 In the those circumstances, the application for leave to appeal must fail. There is no need to decide whether the considerations relating to the applicable law and the foreign status of the defendants come into play when deciding whether the claimants were properly joined under Pt10 r1A(1)(i), or only in the application made under Pt11 r8(i); although I think that, in the light of Agar and the cases referred to in Ritchie's Supreme Court Practice at paragraph 10.1A.7, the better view is that it is Pt8 considerations only that are relevant in relation to proper joinder for the purposes of Pt10 r1A(1)(i). 30 Having regard to the basis of the decisions of Master McLaughlin and Burchett AJ, and this decision, it may possibly be open for the claimants still to apply for determination of a separate question concerning the applicability of Californian law and the limitation issue under that law. It seems to be common ground that the last cause of action against the claimants accrued more than four years prior to the commencement of the proceedings, and it may be that, having regard to the extent of other issues in the case and the burden of the proceedings on the claimants, the undesirability of separate determination of the limitation issues as referred to in Wardley Australia v The State of Western Australia (1992) 175 CLR 514 at 533 would not be decisive. However, that matter may well depend upon evidence and submissions that are not before us. 31 For those reasons, in my opinion, the application for leave to appeal should be refused with costs. 32 SPIGELMAN CJ: I agree. 33 BEAZLEY JA: I agree. 34 SPIGELMAN CJ: The order of the Court is that the application for leave to appeal is refused with costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.