Supreme Court New South Wales Medium Neutral Citation: Di Francesco & anor v Pioneer Energy Pty Limited & ors [2014] NSWSC 480 Hearing dates: Monday, 7 April 2014 Decision date: 29 April 2014 Jurisdiction: Equity Division Before: Brereton J Decision: This proceeding be consolidated with proceeding 2013/102212; Plaintiffs in the consolidated proceedings file within 28 days a consolidated statement of claim; Plaintiffs pay the defendants' costs of the motion. Catchwords: PROCEDURE - courts and judges generally - courts - application for consolidation of two proceedings - where issues in the second proceeding are a subset of the larger dispute encompassed by the first proceeding - whether the benefits of early determination of the issues raised in the second proceeding are such as to outweigh the detriment of two final hearings in respect of closely related disputes - where not apparent that there is any need to determine the claims for relief in the second proceeding before the first proceeding, nor utility in doing so - proceedings consolidated Legislation Cited: (NSW) Uniform Civil Procedure Rules 2005, r 28.5 Category: Interlocutory applications Parties: Charlie Di Francesco (first plaintiff) Blue Oil Energy Pty Ltd (ABN 22 139 462 883) (second plaintiff) Pioneer Energy Pty Ltd (ACN 147 522 656) (first defendant) Pioneer Energy Holdings Pty Ltd (second defendant) Morgan Stanley Capital Group Inc (third defendant) Representation: Counsel: D Pritchard SC w V Culkoff (plaintiffs/respondents) D Klineberg (defendants/applicants) Solicitors: Spinks Eagle Lawyers (plaintiffs) King & Wood Mallesons (defendants) File Number(s): 2013/386061 Judgment 1By notice of motion filed on 25 March 2014, the defendants seek an order that this proceeding ("the second proceeding") be consolidated with, or alternatively heard together with, proceeding 2013/102212 ("the first proceeding"), and additionally or alternatively that this proceeding continue on pleadings. Background 2Blue Oil Energy Pty Ltd ("Blue Oil") (as to 25%) and Morgan Stanley Capital Group Inc ("Morgan Stanley") (as to 75%) are the shareholders in Pioneer Energy Holdings Pty Ltd ("Pioneer Holdings"), which was established by Morgan Stanley and Blue Oil as the joint venture vehicle for a project to construct a diesel storage and loading facility in Mackay, Queensland. 3The joint venture relationship between Morgan Stanley and Blue Oil is governed principally by a shareholders' agreement between Morgan Stanley, Blue Oil and Pioneer Holdings made in late January or early February 2011. Clause 15.11(b) provides that, with the exception of contracts relating to insurance coverage, a contract relating to an amount exceeding $250,000 must be executed by one director nominated by Blue Oil and one director nominated by Morgan Stanley. Clause 7.4(b) provides that any decision to change the "Initial Funding Budget" by $5 million or more requires unanimous consent of the board. 4Pioneer Energy Pty Ltd ("Pioneer Energy") is a wholly-owned subsidiary of Pioneer Holdings and is the operating entity for the venture. On 9 February 2011, Pioneer Energy entered into a construction agreement dated 9 February 2011 ("the construction contract") with a related entity of Blue Oil, Blue Diamond Australia Pty Ltd ("Blue Diamond"), for construction of the facility for a price of $46 million. 5Mr Prakash Seth is a director and majority shareholder of Blue Oil and Blue Diamond, and he and Mr Di Francesco are the Blue Oil nominee directors on the boards of Pioneer Holdings and Pioneer Energy. 6On 5 March 2013, the directors of Pioneer Energy purported to resolve to terminate the construction contract. Blue Diamond, Blue Oil, Mr Seth and Mr Di Francesco dispute the validity of the termination. The first proceedings 7On 4 April 2013, Mr Di Francesco, Mr Seth and Blue Oil commenced the first proceedings against Pioneer Holdings Pty Limited and the directors nominated by Morgan Stanley - namely Chark Hoe Tan, Peter Ng, Jeremy Tan and Harry Ubhi - seeking substantive relief under (CTH) Corporations Act 2001, ss 180-183, 232-233, 461 and 1324 in respect of alleged breaches of directors' duties, oppression, winding up on the just and equitable grounds, and injunctive relief in respect of alleged actual or threatened breaches of the Corporations Act. They also sought interlocutory relief restraining the defendant directors from, taking any steps, including the passage of any resolution, to increase the Initial Funding Budget as foreshadowed in the notice of a meeting of directors to be held that day. 8The application for injunctive relief was unsuccessful [In the matter of Pioneer Energy Holdings Pty Limited [2013] NSWSC 425]. Thereafter, the first proceeding continued on pleadings, which were amended from time to time. Blue Diamond was added as fourth plaintiff, and Morgan Stanley as sixth defendant, pursuant to orders made on 15 April 2013. 9On 7 May 2013, Blue Oil filed an interlocutory process. On 16 May 2013, Blue Oil served a (foreshadowed) amended interlocutory process, which it proposed to seek leave to file, seeking an order to the effect that Pioneer Energy be restrained from executing any contract in excess of $250,000 without it being executed by one director nominated by Blue Oil as referred to in cl 15.11(b) of the shareholders agreement, and from entering into a proposed construction contract with Chemie-Tech LLC (as referred to in a notice of meeting dated 26 April 2013), unless it was signed by a Blue Oil director (as defined in the shareholders agreement). Leave to file the amended interlocutory process was granted on 20 May 2013 and it was listed for hearing on 27 May. Although the parties prepared for that hearing and exchanged submissions as if the claim for that injunction was in issue, ultimately the claim for that relief was not pressed on 27 May 2013, whereupon Bergin CJ in Eq ordered the separate determination of two questions pertaining to the construction of clause 7.6(b) of the shareholders' agreement. 10Following the hearing on 27 May 2013, and the non-agitation of the claim for relief referred to above, Pioneer Energy on or about 21 June 2013 purported to enter into a construction contract with Chemie-Tech LLC for a price of $18,750,000. This agreement was purportedly executed on behalf of Pioneer Energy by two directors, not including any Blue Oil director. 11On 18 July 2013 Bergin CJ in Eq heard, and on 19 August determined, the separate questions [In the matter of Pioneer Energy Holdings Pty Limited [2013] NSWSC 1134]. 12Meanwhile, Pioneer Energy was added as seventh defendant in the first proceeding, pursuant to order made on 5 August 2013. The current version of the pleading is a further amended statement of claim of 7 August 2013, by which the plaintiffs claim relief for alleged breach (including repudiation) of the original construction contract between Pioneer Energy and Blue Diamond, breach of directors' duties, and oppression. Fundamentally, the first proceeding is concerned, in various ways, with the manner in which the Morgan Stanley interests have acted in the affairs of Pioneer Holdings and Pioneer Energy. 13On 19 September 2013, Black J order that Blue Oil and Blue Diamond give security for the second to sixth defendants' costs of the first proceeding in the sum of $338,000 within 28 days, and that the proceeding be stayed if the security was not provided. The security was not provided, and accordingly the first proceeding was stayed with effect from 18 October 2013. 14On or about 16 December 2013, Pioneer Energy purported to enter into a loan agreement with Morgan Stanley for $25 million at an effective interest rate of 17%. The loan agreement was purportedly executed on behalf of Pioneer Energy by two directors, not including any Blue Oil director. The second proceedings 15While the stay of the first proceeding was in effect, Mr Di Francesco and Blue Oil commenced the second proceeding by summons filed on 24 December 2013. On 3 March 2014 I granted the plaintiffs leave to amend the summons in the first proceeding. By the amended summons, the plaintiffs claim declarations as to the true construction of clauses 15.11(b) and 7.4 of the shareholders agreement and a declaration that the loan agreement is invalid and will not be binding on or enforceable against Pioneer Energy without being executed by a Blue Oil director. 16On 3 March 2014, I also directed that any motion for pleadings or consolidation be returnable on 31 March, and that the plaintiffs lodge and serve an outline of their submissions for the final hearing, in order that it could be seen just how the plaintiffs proposed to put their case and whether pleadings would be required. 17On 5 March 2014, Blue Oil and Blue Diamond lodged a bank guarantee by way of security which conformed to the orders for security, as subsequently varied on 3 March 2014. 18The plaintiffs lodged and served their submissions on 17 March. The present motion was filed on 25 March 2014. In correspondence of 28 March 2014, the plaintiffs' solicitors informed the defendants' solicitors that they intended to seek leave to further amend the statement of claim in the first proceedings by reinstating a number of paragraphs which had been deleted from the current iteration of the pleading, some of which appear to at least potentially raise issues in respect of clause 15.11(b), which is the subject of the second proceeding. Application for pleadings 19It is convenient first to dispose of the application for pleadings. Although the defendants contended that pleadings were necessary to assist them to understand the plaintiffs' case and in particular precisely how the allegation in relation to clause 7.4 of the shareholders agreement was to be reconciled with the Further Amended Statement of Claim, it seems to me that the plaintiffs claim in the second proceeding is purely one of construction which does not appear to involve contested questions of fact, and the arguments on which are amply clarified by the plaintiffs' submissions. There is not in my judgment any requirement for pleadings, unless the proceedings are to be consolidated. Application for consolidation 20I turn then to the application for an order that the proceedings be consolidated, or heard together. 21UCPR r 28.5 provides that if several proceedings are pending in the court the court may order that they be consolidated or tried at the same time if it appears that (a) they involve a common question, or (b) the rights to relief claimed in them are in respect of, or arise out of, the same transaction or series of transactions, or (c) for some other reason it is desirable to make such an order. 22Like the first proceeding, the second proceeding is concerned with aspects of the manner in which the Morgan Stanley interests have acted in the affairs of Pioneer Holdings and Pioneer Energy. It is a subset of the larger dispute encompassed by the first proceeding. It is not even a discrete part of the dispute, as its resolution will not resolve the whole dispute, and it is inconceivable that the plaintiffs would not wish to rely on any breaches that might be established in the second proceeding as particulars of oppression in the first. As the defendants submit, all parties to the second proceeding are parties to the first proceeding, although there are additional parties to the first proceeding (being the Morgan Stanley directors of Pioneer Holdings). The same solicitors act for the plaintiffs and for the defendants respectively in both proceedings. Both proceedings concern the joint venture in respect of the Mackay facility, and the construction of the shareholders agreement. The construction of clause 7.4 of the shareholders agreement, which is one of the issues in the second proceeding, is also in issue in the first proceeding. The issues in respect of the construction of clause 15.11 of the shareholders agreement, now raised in the second proceeding, would have been raised by the proposed amended interlocutory process that Blue Oil foreshadowed but ultimately did not press in the first proceeding. 23Those considerations would normally indicate that the proceedings should, at least, be heard together if not consolidated. That conclusion is fortified by the circumstances, first, that the plaintiffs at one stage proposed to litigate the issues now raised in the second proceeding on an interlocutory process in the first proceeding, but then did not do so; and secondly, that there is a strong inference that the second proceeding was commenced as a separate proceeding because at that time the first proceeding was stayed on account of the plaintiffs' failure, at that time, to provide security for costs as ordered in the first proceeding. 24However, the plaintiffs submit that this conclusion should not follow, because the second proceeding is straightforward, involving questions of documentary construction and no question as to the credibility of witnesses; that the evidence in it is complete and the plaintiffs' submissions have been served, so that the matter is ready for allocation of a hearing, which would require only half a day; and that the orders sought concern the ongoing operation of the joint venture agreement and involve significant amounts, and also involve issues of the personal liability of the first plaintiff as a director. In contrast, they submit that the first proceeding involves allegations of oppression, raising complex fact-dependent issues in respect of which there will be questions of credibility; that the first proceeding is at a very early stage, the further amended statement of claim having been filed on 7 August 2013 but no defence or cross-claim yet having been filed, and would not likely be heard before the end of 2014; that it involves additional parties not engaged in the second proceeding; and that it has already involved a separate determination of a question of construction. 25I accept that the second proceeding is relatively straightforward, involves the construction of two clauses of the shareholders agreement, and does not appear to involve any disputed questions of fact - although the defendants have indicated that it should not be assumed that they will not wish to adduce evidence. As things presently stand, it is likely that the second proceeding would not require more than a day's hearing time and could be heard in the next two or three months. I also accept that the first proceeding is a much more extensive dispute, which would involve a much lengthier hearing, and is at a relatively early stage, such that it would not likely be heard until 2015. It is also correct that the first proceeding involves additional parties who are not joined to the second proceeding; however, these are the Morgan Stanley nominated directors of Pioneer Holdings, who are represented by the same lawyers as the other defendants, so that this is of no practical consequence. 26Thus the gravamen of the plaintiffs' submission is that the proceedings should not be heard together, because the second proceeding can be heard and determined much sooner. In turn, that poses the question whether the benefits of early determination of the issues raised in the second proceeding are such as to outweigh the detriment of two final hearings in respect of closely related disputes, in which some overlap appears highly likely. 27As to this, it is said that Mr Di Francesco is concerned that the purported loan agreement will not be binding on or enforceable against Pioneer Energy unless signed by him or Mr Seth; however, it is not as if they wish to sign it, or that it be binding - quite the contrary. While Blue Oil and Mr Di Francesco say that they are concerned that entry by Pioneer Energy into agreements such as the Chemie-Tech agreement and the loan agreement in contravention of the Shareholders Agreement may potentially expose them to third party liability - which in oral submissions was clarified to be potentially in respect of insolvent trading - it is not apparent how that could be so where Mr Di Francesco and Mr Seth opposed the incurring of the relevant liabilities. As to the submission that the orders sought in the second proceeding concern the ongoing operation of the joint venture agreement and involve significant amounts, and also involve issues of the personal liability of Mr Di Francesco, the relief claimed is declaratory only, and does not appear to have anything to do with personal liability of Mr Di Francesco. And although a declaration is sought that the loan agreement is not binding on or enforceable against Pioneer Energy "without being executed by one director of [Pioneer Energy] nominated by [Blue Oil]", no declaration is sought that the Chemie-Tech agreement is not binding on Pioneer Energy - nor could it be, as Chemie-Tech is not a party. Moreover, no injunction is sought to restrain the defendants from giving effect to the loan agreement, nor from entering into any further agreement in contravention of clause 15.11. Conclusion and orders 28The issues in the second proceeding are a subset of the larger dispute encompassed by the first proceeding, and they will almost inevitably also be issues in the first proceeding. It is not apparent that there is any need to determine the claims for relief in the second proceeding before the first proceeding, nor utility in doing so. To do so would not resolve the larger dispute; nor, because only declaratory relief is sought, would it address any short-term need. Parties are generally expected to bring all their related disputes to the court in the one proceeding - as the Anshun estoppel doctrine illustrates. If in that context there is perceived to be benefit in the early resolution of one aspect, the determination of a separate question may be ordered. Or if relief pending final determination is appropriate, interlocutory relief may be sought. 29While orders for consolidation, strictly so-called (as distinct from orders that proceedings be heard together, with evidence in one being evidence in the other), are rarely made, mainly due to the procedural complexities involved where there are multiple parties in different roles, those problems are not present in this case, where in each proceeding there is a substantial correspondence of the parties on each side of the record. In the context of this case (and as the plaintiffs in the first proceeding have already indicated that they propose to seek leave to further amend their pleading), it will be helpful to have a single pleading that articulates the whole of the plaintiffs' case. 30Accordingly, the court orders that: (1)This proceeding be consolidated with proceeding 2013/102212; (2)The plaintiffs in the consolidated proceedings file within 28 days a consolidated statement of claim; (3)The plaintiffs pay the defendants' costs of the motion. ********** 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. Decision last updated: 30 April 2014