CATCHWORDS
PRACTICE AND PROCEDURE - strike out application - general principles - whether defects in statement of claim require entire pleading to be struck out - discussion of proper approach to be taken where litigant unrepresented.
PRACTICE AND PROCEDURE - strike out application - litigant purports to file statement of claim on behalf of two deregistered companies - effect of deregistration of company party to proceedings.
ESTOPPEL - strike out application - Res Judicata - issue estoppel - Anshun Estoppel - discussion of principles.
PRACTICE AND PROCEDURE - strike out application - deeds of company arrangement entered by respondents - effect on claims of applicants.
PRACTICE AND PROCEDURE - strike out application - failure to plead facts material to cause of action under Order 11, r.2 Federal Court Rules.
PRACTICE AND PROCEDURE - strike out application - whether to grant leave to replead - conditions to repleading.
PRACTICE AND PROCEDURE - application for transfer of proceedings.
PRACTICE AND PROCEDURE - application to join proceedings brought by first applicant with bankruptcy proceedings in which first applicant is debtor.
PRACTICE AND PROCEDURE - alleged conflict of interest - legal representatives acted for administrator and shareholders of communities - whether court has power to require separate legal representation.
Corporations Law, Pt 5.3A, Div. 10.
Federal Court Rules, Order 11, r.16; Order 12, r.1; Order 41, r.5.
A & S Oayda Investments Pty Ltd v Burns Philp Trustee Company Ltd (In Liq.), FCA/Lockhart J., 25 November 1994, unreported
Azzopardi v Bois [1968] VR 183
Blair v Curran (1939) 62 CLR 464
Bryant v Commonwealth Bank of Australia (1995) 57 FCR 287
Chamberlain v Deputy Commissioner of Taxation (1988)
Coe v Commonwealth of Australia (1979) 24 ALR 118
Commonwealth Industrial Gases Ltd v Top Australia Ltd FCA/O'Loughlin J., 16 April 1993, unreported
Dey v Victorian Railways Commissioners (1949) 78 CLR 62
Empire Shipping Company Inc v Owners of the Ship "Shin Kobe Maru" (1991) 32 FCR 78
General Steel Industries Inc v Commissioner for Railways (NSW)
(1964) 112 CLR 125
Leaney v Olmstead Pty Ltd (1994) 51 FCR 240
Linprint Pty Ltd v Hexham Textiles Pty Ltd (1991) 23 NSWLR 508
Nangus Pty Ltd v Charles Donovan Pty Ltd (In Liq.) [1989] VR 184
Port of Melbourne Authority v Anshun Pty Ltd (No.1) (1981) 147 CLR 589
Ramsay v Pigram (1968) 118 CLR 271
Rogers v The Queen (1994) 181 CLR 251
Tardy v Secretary of Department of Community Services and Health, S Ct NSW/McLelland J, 9 October 1990, unreported
Trade Practices commission v Australian Iron & Steel Pty Ltd (1990) 22 FCR 305
Turner v The Bulletin Newspaper Company Pty Ltd (1974) 131 CLR 69
United Services Insurance Co Ltd (In Liq.) v Lang (1935) 35 SR (NSW) 487
JEFFREY ROY CHARLES MORTON Ex Parte MITCHELL PRODUCTS PTY LIMITED
NP 898 of 1995
JEFFREY R. MORTON & ORS v JOHN VOURIS & ORS
QG 100 of 1995
SACKVILLE J.
SYDNEY
18 SEPTEMBER 1996
FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY )
GENERAL DIVISION )
NP 898 of 1995:
JEFFREY ROY CHARLES MORTON
Ex Parte MITCHELL PRODUCTS PTY LIMITED
QG 100 of 1995:
BETWEEN: JEFFREY R MORTON
First Applicant
MACK STUDIOS PTY LIMITED
Second Applicant
UPDATE PUBLISHING PTY LIMITED
Third Applicant
AND: JOHN VOURIS
First Respondent
COURT & COMPANY
Second Respondent
MITCHELL PRODUCTS PTY LIMITED (FORMERLY TRUEFEAT PTY LIMITED)
Third Respondent
HOSKINS WHOLESALERS (FORMERLY
BUDLYRE PTY LIMITED)
Fourth Respondent
BENELAN PTY LIMITED
Fifth Respondent
MARK A. FRANKS
Sixth Respondent
MARK A FRANKS & BARBARA FRANKS AS TRUSTEES FOR THE MARK & BARBARA FRANKS FAMILY TRUST
Seventh Respondent
CORAM: SACKVILLE J.
PLACE: SYDNEY
DATE: 18 SEPTEMBER, 1996
MINUTES OF ORDER
THE COURT ORDERS THAT:
1. The statement of claim filed on 8 March 1996 by the applicants in Proceedings QG 100 of 1995 be struck out.
2. The applicants in Proceedings QG 100 of 1995 be at liberty to apply to the Court within 42 days from today for leave to file an amended statement of claim, on production of an affidavit or affidavits showing that
(a) there are facts which probably can be proved and which, if proved, would support the general allegations in the proposed amended statement of claim; and
(b) any corporate applicant is entitled to maintain legal proceedings on its own behalf and that any such applicant has duly authorised the making of the application to file the amended statement of claim.
3. Any application for leave to file an amended statement of claim in accordance with paragraph 2, and any affidavit or affidavits in support of such an application, be in typed or word processed form and otherwise in accordance with the Federal Court Rules.
4. The first applicant in Proceedings QG 100 of 1995 pay the costs of the respondents' motions in those proceedings to strike out the statement of claim.
5. The motion in Proceedings QG 100 of 1995 and the motion in Proceedings NP 898 of 1995, seeking orders for the transfer of each proceedings, be dismissed, but without prejudice to the entitlement of the applicants in Proceedings QG 100 of 1995 to file a further motion seeking an order for transfer of the proceedings after the close of pleadings (should leave be granted to the applicants, or any of them, to file an amended statement of claim).
6. The motion on behalf of the applicants in Proceedings QG 100 of 1995 and the motion on behalf of the debtor in Proceedings NP 898 of 1995, seeking orders that both proceedings be heard together, be dismissed.
7. The costs of each of the motions referred to in paragraphs 5 and 6 be costs in the respective causes.
8. The motion dated 19 April 1996 on behalf of the applicants in Proceedings QG 100 of 1995, relating to the legal representation of the respondents, be dismissed.
9. The matter be relisted for directions on Wednesday, 13 November 1996, at 9.30 a.m.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY )
GENERAL DIVISION )
NP 898 of 1995:
JEFFREY ROY CHARLES MORTON
Ex Parte MITCHELL PRODUCTS PTY LIMITED
QG 100 of 1995:
BETWEEN: JEFFREY R MORTON
First Applicant
MACK STUDIOS PTY LIMITED
Second Applicant
UPDATE PUBLISHING PTY LIMITED
Third Applicant
AND: JOHN VOURIS
First Respondent
COURT & COMPANY
Second Respondent
MITCHELL PRODUCTS PTY LIMITED (FORMERLY TRUEFEAT PTY LIMITED)
Third Respondent
HOSKINS WHOLESALERS (FORMERLY
BUDLYRE PTY LIMITED)
Fourth Respondent
BENELAN PTY LIMITED
Fifth Respondent
MARK A. FRANKS
Sixth Respondent
MARK A FRANKS & BARBARA FRANKS AS TRUSTEES FOR THE MARK & BARBARA FRANKS FAMILY TRUST
Seventh Respondent
CORAM: SACKVILLE J.
PLACE: SYDNEY
DATE: 18 SEPTEMBER, 1996
REASONS FOR JUDGMENT
BACKGROUND
This is the hearing of a number of notices of motion, which were filed in two separate sets of proceedings. They have been heard together, pursuant to directions made by me.
Both sets of proceedings involve Mr Jeffrey Morton, who has appeared before me, as he has before other judges of this Court and, indeed, before judges of other courts, as an unrepresented litigant. I shall refer to the first proceedings, QG 100 of 1995, as the administration proceedings, since they involve questions concerning the administration of two of the respondent companies. I shall refer to the second proceedings, NP 898 of 1995, as the bankruptcy proceedings, since they involve an application for a sequestration order against the estate of Mr Morton. The principal, but not the only issue is whether a statement of claim filed by the applicants (including Mr Morton) in the administration proceedings should be struck out.
The Administration Proceedings
The administration proceedings were commenced by an application filed in the Queensland District Registry on 12 July 1995. The applicants were Mr Morton and two companies, Mack Studios Pty Ltd ("Mack Studios") and Update Publishing Pty Ltd ("Update"). Both companies have now been deregistered, having been dissolved on 9 October 1995. Mr Morton was a director of Update from March 1993 until its dissolution. However, he appears never to have been a director of Mack Studios.
The respondents in the administration proceedings are the following:
l The first respondent, John Vouris, a chartered accountant and a partner in the firm Court & Co, the second respondent. Mr Vouris acted as administrator of the third and fourth respondents, pursuant to deeds of company arrangement, from 1 November 1994 until his retirement on 2 September 1995.
l The second respondent, Court & Co.
l The third respondent, Mitchell Products Pty Ltd ("Mitchell"), formerly known as Truefeat Pty Ltd ("Truefeat"). Mitchell has ceased to be subject to the deed of company arrangement and now trades in the Australian Capital Territory, apparently in the field of "adult" entertainment. Mitchell is the petitioning creditor in the bankruptcy proceedings, having been substituted for the fourth respondent by an order of Tamberlin J., made on 2 November 1995.
l The fourth respondent, Budlyre Pty Ltd ("Budlyre"). Like Mitchell, Budlyre has ceased to be subject to the deed of company arrangement and trades in the Australian Capital Territory, apparently in the same field.
l The fifth respondent, Benelan Pty Ltd
("Benelan"). Benelan
is a corporation which trades in the Australian Capital Territory, also
apparently in the field of "adult" entertainment. Benelan appears to have been under the
control of the Franks family.
l The sixth respondent, Mark A. Franks, a resident of the United States.
l The seventh respondent, Mark A. Franks and Barbara Franks as trustees for the Franks Family Trust (the "Franks Trust"). The Franks Trust is a shareholder in Budlyre, and Mitchell and Benelan. The Franks family, according to a statement of claim filed on behalf of the Franks Trust in earlier proceedings, have been involved, through various corporate entities, in the business of producing, supplying and distributing "adult" videos and products.
The administration proceedings have consumed a considerable
amount of judicial time, not to mention time and resources of the
Registry. (I referred to the demands on
the Registry in my judgment of 24 July 1996, refusing Mr Morton's application
for an adjournment of the current hearing.)
For example, Beazley J. considered a claim by the applicants for
interlocutory orders restraining Mr Vouris, who was then the administrator of
Truefeat and Budlyre, from dealing with the assets of those companies. The hearing of that application took place
over six days in August and September 1995.
Mr Morton appeared by means of a video-link with Brisbane (where he was
residing at the time),
because of the difficulties he said he would experience if he were required to
travel to Sydney.
In March 1996, Mr Morton filed a statement of claim of 110 handwritten pages, on his own behalf and on behalf of Mack Studios and Update. He has also filed a very large number of affidavits and notices of motion. In total, at least 93 affidavits have been filed by Mr Morton, most of which are in handwriting. I was told that some 30 notices of motion have been filed on behalf of the applicants. Mr Morton has apparently been entitled to claim exemption from Court filing fees because of his financial circumstances.
The Adjournment Application
The hearing before me was preceded by three directions hearings, held on 1, 17 and 24 July 1996. On each occasion the Court arranged a video link connection for Mr Morton, who was in Brisbane on the date of the first hearing and in Canberra on the dates of the last two hearings. Mr Morton did not, however, appear on 17 and 24 July 1996, claiming that he was too ill to do so.
Although Mr Morton did not appear at the last
two directions hearings, he sought an adjournment of the hearing, which had
been scheduled for 29 July 1996 in Sydney (with a video-link to be
made available for Mr Morton, who at the time the matter was set down for
hearing was living in Brisbane). Mr
Morton presented written material in support of his application for
adjournment,
which he based largely, but not entirely, on medical and financial
grounds. I rejected his application and
revoked the directions for the hearing scheduled for 29 July 1996 to take place
via video-link. I gave reasons for my
decision in the judgment to which I have already referred. Among other things, I took into account that
Mr Morton changed his place of residence from Brisbane to Canberra shortly
after the directions hearing on 1 July 1996, without advising the Court on 1
July 1996 that he intended to do so.
Until Mr Morton decided to move to Canberra, arrangements had been put
in place for the hearing scheduled for 29 July 1996 to be conducted by means of
a video-link with Brisbane.
The Notices of Motion
At the directions hearings, I ordered that the following notices of motion be heard together:
(i) the notices of motion filed on behalf of all respondents, other than Benelan, to strike out the applicants' statement of claim in the administration proceedings, or to dismiss the proceedings;
(ii) a similar notice of motion ultimately filed on behalf of Benelan (which was separately represented at the hearing);
(iii) a notice of motion filed on behalf of the applicants in the administration proceedings and Mr Morton in the bankruptcy proceedings seeking the transfer of the proceedings to Brisbane or, alternatively, Canberra;
(iv) a notice of motion by the applicants in the administration proceedings, in effect challenging the entitlement of all respondents (other than Benelan) to be represented by the same solicitors and counsel;
(v) a notice of motion by the applicants in the administration proceedings and Mr Morton in the bankruptcy proceedings, that both sets of proceedings be heard together.
The Hearing
The hearing of these notices of motion took place over four days in Sydney. Mr Lever appeared on behalf of the respondents other than Benelan; Mr McGrath appeared for Benelan. Mr Morton represented himself. On the first day, Mr Morton renewed his application for an adjournment. I rejected that application and gave reasons for doing so.
I observe that, despite Mr Morton's submissions
the previous week and on the first day, which suggested that he would be unable
for health and financial reasons to attend or participate in the hearing, not
only did he attend, but he participated actively. He adduced evidence and made
submissions at the hearing. Inevitably,
Mr Morton does not present oral argument in a manner that might be expected of
a trained lawyer, and his submissions
cannot be described as models of lucidity or clarity. Nonetheless, in my opinion, he is not a
person who is unable to present the substance of a point he wishes to
make.
In fairness to Mr Morton, I should record that he conducted himself with courtesy during the hearing. I should also record that counsel (and, in particular, Mr Lever who had the carriage of most of the argument) assisted by taking care to explain the submissions they were putting in order to ensure Mr Morton had the opportunity to follow the arguments.
I gave Mr Morton an opportunity, in relation to the strike out application, to make submissions in writing after the conclusion of the hearing. He availed himself of that opportunity. Mr Morton's written submissions run to 90 (typewritten) pages. They commence with a request that the Court take into account that he prepared the document without the benefit of legal advice. Despite the apparent absence of such advice, Mr Morton referred in his submissions to scores of authorities on issues such as the relationship between impecuniosity and an order for security for costs; the effect of deregistration of companies on litigation to which they are parties; the circumstances in which a deregistered company may be reinstated; the circumstances in which a party can go behind an apparently final judgment; the principle of unjust enrichment; the scope of the power to strike out pleadings; and the circumstances in which a party whose pleadings are struck out should be given leave to replead.
I have given consideration to Mr Morton's written submissions. However, I should note that they frequently refer to matters that were not supported by evidence and they are not particularly helpful in elucidating the nature of the allegations made in the statement of claim.
COURSE OF EVENTS
Before proceeding to the difficult task of summarising the statement of claim, it is convenient to set out the background circumstances so far as they appear from the evidence. These include earlier Federal Court proceedings involving the Franks family interests as applicants and Mr Morton, Budlyre, Truefeat and Benelan as respondents. The Franks proceedings (as I shall call them) are relevant because Mr Lever submitted that Mr Morton was precluded, on principles of res judicata, issue estoppel or "Anshun" estoppel (Port of Melbourne Authority v Anshun Pty Ltd (No.1) (1981) 147 CLR 589), from raising in the administration proceedings matters or issues finally resolved in the Frank proceedings. The Franks proceedings are also relevant to an understanding of allegations made in the statement of claim. However, other material events need to be explained.
The Franks Proceedings
On 22 June 1994, Mark Franks, the trustees of the Franks Trust and an associated company commenced proceedings in the Federal Court claiming, inter alia:
l declarations that the Franks Trust was the beneficial holder of all issued shares in Budlyre, Truefeat and Benelan;
l declarations that Mr Morton held his shares in Benelan and Truefeat in trust for the Franks Trust;
l an order that Mr Morton account to the applicants, or to Budlyre and Truefeat, for the sum of USD 25,000 provided by Mr Franks to meet the tax liabilities of the two companies.
The respondents to the proceedings were Mr Morton, Budlyre, Benelan and Truefeat.
The applicants' statement of claim alleged that Mr Morton had made a declaration of trust of his shareholdings in Benelan and Truefeat in favour of the Franks Trust. A cross-claim filed on behalf of Mr Morton pleaded that the applicants were estopped from asserting a trust of the shares in Budlyre and Truefeat and that any declaration of trust executed by him was not in truth his deed or act. (It is not clear whether the cross-claim intended to refer to Benelan instead of Budlyre.) Mr Morton sought declarations he held one half of the share capital in Budlyre and Truefeat beneficially. He also sought a declaration that Mr Franks held one half of the issued shares in Benelan in trust for him.
On 4 July 1994, a hearing took place before
Hill J. at which Mr
Morton was represented by counsel. At
that hearing Mr Morton filed no evidence.
However, counsel for the applicants tendered a declaration of trust
signed by Mr Morton, produced in response to a notice to produce. As his Honour said, the declaration of trust,
on its face, was totally adverse to Mr Morton's position, which was that he was
the beneficial owner of the shares.
Faced with this evidence, Mr Morton's counsel sought an adjournment in order to adduce further evidence explaining the declaration of trust. His Honour granted the application, but made orders in the meantime appointing Mr Vouris receiver of the assets of Truefeat and Benelan. His Honour also restrained Mr Morton from dealing with the assets of Budlyre, Truefeat and Benelan and from exercising any power or authority as director of Truefeat without Mr Vouris' authority.
On 10 August 1994 the applicants sought summary judgment against Mr Morton in respect of the amount of USD 25,000 and certain other orders. Again, Mr Morton was represented by Counsel. His Honour delivered ex tempore reasons (Franks v Morton, unreported, FCA/Hill J., 10 August 1996), which included the following passage (at 4-5):
"On the evidence no conclusion is possible other than that Mr Morton transferred moneys out of the account of Budlyre and that all of the moneys were paid to him or at his direction for purposes which he does not attempt to explain. In these circumstances it is difficult to see that Mr [Morton] has through his evidence indicated any defence at all to the claim derivatively made on behalf of Budlyre, which of course is a respondent to the proceedings, that the moneys have been put by Mr Morton to a use which was not authorised.
...
It seems to me that the only order that could possibly be appropriate is the order that the money at this stage be paid to the company and I would in the circumstances propose to make such an order."
Orders were entered on 22 August 1994 requiring Mr Morton to pay Budlyre the sum of USD 25,000.
His Honour listed the matter for a further hearing on 24 October 1994. Mr Morton did not appear on that date. His Honour made a number of orders, including the following:
"1. The First Respondent [Mr Morton] holds all shares in the capital of Benelan Pty Limited registered in his name upon trust for the First Applicants.
2. The First Respondent holds all shares in the capital of Truefeat Pty Limited registered in his name upon trust for the First Applicants.
...
6. The First Respondent do all such things and execute all such documents as are necessary to transfer all shares registered in his name in the capital of Benelan Pty Limited to the First Applicants within 7 days of the service of these Orders as hereunder provided.
...
8. The First Respondent do all such things and execute all such documents as are necessary to transfer all shares registered in his name in the capital of Truefeat Pty Limited to the First Applicants within 7 days of service of these Orders.
...
13. The appointment of John Vouris as receiver of the assets and undertaking of Benelan Pty Limited and Truefeat Pty Limited be terminated.
14. The
First Respondent pay the Applicants, the
Third Respondent [Benelan] or the Fourth Respondent [Truefeat] as the case may
be, the costs of and incidental to the receivership.
15. The First Respondent pay the Applicants' costs of and incidental to the proceedings.
...
18. The First Respondent's Cross Claim be dismissed."
Mr Morton's Non-Attendance
I interpose here that Mr Morton gave oral evidence as to his reasons for not appearing at the hearing before Hill J., scheduled for 24 October 1994. He maintained that the principal reason for his non-attendance was that he was concerned for his physical safety. He also gave other reasons, including at least one that was quite extraordinary, and for which there is no supporting evidence whatsoever.
Mr Morton was cross-examined on his evidence. I therefore had the opportunity to observe him in the witness box. In the course of his evidence, Mr Morton acknowledged that one factor in his decision not to appear was that he was aware that the ACT Police intended to arrest him, on a charge relating to the alleged misappropriation of the sum of USD 25,000 at issue in the proceedings. However, Mr Morton maintained that this was a "lesser fear" and that his primary concern was his physical safety.
I do not accept Mr Morton's explanation for his
non-attendance in Court on 24 October 1994.
I find that the only significant
reason motivating Mr Morton not to appear at the hearing scheduled for that day
was that he wished to avoid being arrested by or at the instigation of the ACT
Police. He was fully aware that the
matter was set down for hearing and was not unable, whether by reasons of
health or fears for his personal safety, to attend the hearing had he chosen to
do so.
The Administrator and the Deeds of Arrangement
On 1 November 1994, Mr Vouris was appointed administrator of each of Budlyre and Truefeat. The appointment was made by each company pursuant to s.436A of the Corporations Law.
On 19 December 1994, the creditors of each company, at meetings convened under s.439A of the Law and held in Canberra, resolved that the company should execute a deed of arrangement. The deeds were, in fact, executed on 21 December 1994.
It is necessary only to refer to the terms of
the Truefeat deed, since the Budlyre deed was, in substance, the same. Mr Vouris was appointed administrator, with
the usual wide powers for the purposes of administering the deed (cll.2.1,
3.1). The property available for
distribution to creditors was $245,000, being the proceeds of sale of the
company's assets (cl.5.1). (The
equivalent figure for Budlyre was $30,000.)
The administrator was required to apply this sum in the order of
priority specified in s.556 of the Law (cl.6.2). The creditors whose proofs of debt were
admitted by the administrator were entitled to be paid pro rata from the sum available for distribution (cl.6.3). The deed
dealt with release of debts and extinguishment of claims as follows:
"7. RELEASE OF DEBTS
7.1The creditors of the Company must accept their entitlements under this Deed in full satisfaction and complete discharge of all debts or claims which they have or claim to have against the Company as at 31 October 1994 and each of them will, if called upon to do so, execute and deliver to the company such forms of release of any such claim as the Administrator requires.
8. CLAIMS EXTINGUISHED
8.1If the Administrator has paid to the creditors their full entitlements under this Deed, all debts or claims, present or future, actual or contingent, due or which may become due by the Company as a result of anything done or omitted by or on behalf of the Company before 31 October 1994 and each claim against the Company as a result of anything done or omitted by or on behalf of the Company before 1 November 1994 is extinguished."
Claims by creditors were to be dealt with on the basis that Division 6 of Part 5.6 of the Corporations Law applied to such claims as if the references in the Law to the "liquidator" were references to the administrator: cl.10.1.
The Appeal
Meanwhile, on 11 November 1994, Mr Morton filed
a notice of appeal, appealing from the "whole of the judgment of [Hill J.]
given on 15 August 1994 and 24 October 1994". The grounds of appeal included alleged
failures to afford procedural fairness and what were said to be errors in the
holdings that Mr Morton's shares were held in trust and that he was liable to
pay USD
25,000 to Budlyre. There was no
suggestion in the grounds of appeal that the judgment was obtained by
fraud. That appeal was ultimately
dismissed by a Full Court on 23 May 1995.
I should note that I was a member of the Full Court. However, Mr Morton, who has applied previously for at least one judge to disqualify herself, did not suggest that this fact disqualified me from hearing the proceedings listed before me. In any event, I have formed the view that my participation in the Full Court does not disqualify me from dealing with the issues to be decided in relation to the motions before me.
The Proofs of Debt
On 26 January 1995, Mr Morton lodged with the administrator of Truefeat a formal proof of debt, claiming that the company owed him in excess of $500,000, including $300,000 for "unlawful terminations" and $145,000 for "back salary owed". On the same date he lodged a proof of debt in respect of Budlyre claiming to be owed $30,000 in respect of unlawful termination.
Mr Morton's claim in respect of Budlyre was rejected by the administrator on 22 February 1995. His claim in respect of Truefeat was disallowed on 7 June 1995. Each notice advised Mr Morton of his right to appeal to the Federal Court against the rejection of his claims. No such appeal appears to have been brought by Mr Morton, although, as will be seen, he did file notices of motion seeking extension of time in which to appeal.
The Administrator's Remuneration
On 17 March 1995, Hill J. ordered in the Franks proceedings that the remuneration of Mr Vouris as receiver of Truefeat for the period 4 July 1994 to 24 October 1994 be fixed in the sum of $99,466.20. (The order refers to Mr Vouris as receiver "of the Applicant", but it seems clear that this is in error and is intended to refer to Truefeat.) The position, adopted by Mitchell (formerly Truefeat), as I understand it, is that the order made by Hill J. on 17 March 1995, coupled with the costs order in paragraph 15 of his Honour's orders made on 24 October 1994, created a debt due by Mr Morton to Mitchell.
On 1 May 1995, Budlyre commenced the bankruptcy proceedings against Mr Morton. Its application was based on the judgment debt of USD 25,000 resulting from the orders made by Hill J. on 15 August 1994. Although there does not seem to be any evidence on the point, both Mr Morton and Mr Lever appeared to accept that this judgment debt was paid, not by Mr Morton, but by a third party in the United States. In any event, on 2 November 1995, another Judge of this Court, Tamberlin J., ordered that Mitchell be substituted as the petitioning creditor in the bankruptcy proceedings. His Honour made it clear that he was not deciding whether Mr Morton was in truth indebted to Mitchell.
Industrial Relations Court Proceedings
On 2 June 1995, Judicial Registrar Linkenbagh
of the Industrial Relations Court of Australia dismissed 15 separate
applications brought by Mr Morton seeking relief in respect of what was
alleged to be unlawful termination of employment by 15 companies, including
Truefeat and Budlyre. The grounds for
the decision included the absence of any evidence that Mr Morton was ever
employed by any of the companies other than Truefeat. In the case of Truefeat his claim fell
outside the upper limit provided by s.170CD(2) of the Industrial Relations
Act 1988 (Cth).
On 15 June 1995, Mr Morton sought review of the Registrar's decision. The stated grounds included an alleged "total disregard of natural justice" and an alleged "conspiracy within the Industrial Relations Court" to deny him natural justice. It seems that the application for review has not been dealt with, although the evidence does not clarify why it has not been resolved.
Judgments in the Administration Proceedings
As I have said, the applicants commenced the administration proceedings in the Queensland Registry of the Court on 12 July 1995. On the same day the applicants filed 25 affidavits. On 21 July 1995, Spender J. ordered that the matter be transferred to the New South Wales Registry of the Court.
By a notice of motion filed on 27 July 1995, the applicants sought orders that Mr Vouris cease to act as administrator of Truefeat and Budlyre and be restrained from dealing with the assets of those companies. Beazley J. directed that the following question be separately determined:
"Whether the applicants were, as at the date of issue of the application, 12 July 1995, creditors of the third and fourth respondents for the purposes of making an application for the removal of the first respondent as administrator of the deed of company arrangement of the third respondent, and the [fourth] respondent pursuant to section 449B of the Corporations Law."
On 18 August 1995 her Honour answered this question "No". In her published reasons, Beazley J. pointed out that the administrator had not only notified Mr Morton that his proofs of debt had been rejected, but had advertised his intention to pay a dividend to the creditors of the companies. Mr Morton had not appealed against rejection of his proofs. However, her Honour noted that he had taken two steps:
(a) he had filed a notice of motion seeking an extension of time in which to appeal against rejection of the proofs of debt; and
(b) he had obtained an assignment of debts which had been accepted by the administrator.
Despite these steps, Mr Morton had failed to establish that he had the status of a creditor at the time the application was filed, as required by s.449B of the Corporations Law.
On 19 September 1995, Beazley J. delivered a further judgment rejecting Mr Morton's application for an interlocutory injunction restraining Mr Vouris, as administrator of Truefeat and Budlyre, and Court & Co from dealing with the assets of these companies pending determination of the application for the removal of Mr Vouris as administrator. Beazley J. observed in her judgment that there had been very little evidence, after six days of hearings, to support Mr Morton's claims (inter alia) of lack of independence, maladministration and misleading conduct. Her Honour characterised the case as a "weak one". Ultimately, however, she denied relief on a consideration of the balance of convenience, taking into account the delay by Mr Morton in bringing the application.
Termination of the Administration
On 21 September 1995, the administrator certified that the deeds of arrangement had been wholly effectuated and that he had retired as administrator. He stated that the entire funds of Budlyre and Truefeat available under the deeds of arrangement had been expended. The notice to creditors pointed out that the funds available for distribution to creditors had been reduced because of the legal costs incurred in the proceedings instituted by Mr Morton.
THE STATEMENT OF CLAIM
It is no easy task to discern the causes of
action pleaded in the handwritten statement of claim filed in the
administration proceedings. The meaning
of particular paragraphs or segments of the 110 page document is frequently
obscure. The difficulty of comprehending
the pleaded case is exacerbated on occasions by misdescription of the parties
referred to in the pleading and by
the omission of cross-references. The
statement of claim is repetitive and contains inconsistencies. Paragraphs do not run in logical
sequence. Allegations are made - some of
which appear to be scandalous - against persons or firms who are not parties to
the proceedings.
In these circumstances, it is not feasible to summarise succinctly and clearly the substance of the case pleaded by the applicants in the statement of claim. I shall, however, endeavour to summarise the major allegations, following the orders of the statement of claim itself. The somewhat disjointed nature of the summary reflects the structure and contents of the statement of claim itself. Not all paragraphs are referred to in the summary.
Paragraphs 1-20
Paragraphs 1-20 allege that Update was established ("purchased") by Truefeat in March 1993, using funds supplied by Truefeat. Truefeat supplied facilities for Update, while Update provided other services to named companies within the "Truefeat Group" (none of which is a party). It is said that Truefeat has not been reimbursed for these services.
The statement of claim alleges that the
administrator (Mr Vouris) and his firm took possession of the assets and
records of Truefeat and refused Mr Morton access to the records. They also (so it is said) did not advise
creditors of Truefeat that Update was an asset of Truefeat and failed to
recover assets of Update
"on behalf of Truefeat".
It is further alleged that Mr Morton is owed wages by Update (although of course Mr Morton purports to represent Update in the proceedings).
Finally, there is a general allegation that the administrator, Court & Co, and the Franks Trust have been unjustly enriched. No additional facts are pleaded to establish this cause of action.
Paragraphs 21-41
In paragraphs 21-41, it is alleged that Mack Studios carried on a video production business and sold copyrights internationally. Mack Studios was owned by Truefeat, which provided services to it. The administrator and his firm took possession of Truefeat's assets and failed to advise its creditors that Mack Studios was an asset of Truefeat.
Money was paid into US dollar accounts of Budlyre. However, that money was due to Mack Studios and Truefeat. The Franks Family Trust has failed to reimburse Mack Studios for moneys obtained by the sale of copyrights sold on behalf of that company.
The administrator failed to recover assets of Mack Studios on behalf of Truefeat because he was acting in the interests of the Franks family. Moreover, Benelan has received royalties that should have been paid to Mack Studios.
A generalised allegation is made that the Franks Family Trust has been unjustly enriched.
Paragraphs 42-56
It is alleged in these paragraphs that Mr Morton was "denied as a creditor" of Truefeat and Budlyre. He was also denied voting rights at the creditors' meetings of Budlyre and Truefeat.
Mr Morton has not been reimbursed moneys owed by Benelan. Further, the administrator, Court & Co, and the Franks Trust have attempted to bankrupt him despite the fact that he is a creditor of Truefeat and not a debtor.
Mr Morton has been charged by all respondents (other than Benelan) with misappropriating funds, but he did not do so; rather, the administrator and the Franks Trust and their "associates" did so.
The pleadings then refer to the orders made by Hill J., but the nature of the complaint is not clear.
This section concludes with a demand that all parties return to Mr Morton moneys and property obtained from him. He also demands damages and repeats the general allegation that the administrator, Court & Co, and the Franks Trust were unjustly enriched.
Paragraphs 57-73
These paragraphs (among others) are headed "USA COMPANIES". It is alleged that Mr Franks requested Mr Morton to sign blank forms nominating Mr Morton as the President or officer of companies operating in the United States under the control of the Franks interests. Mr Morton was not aware that the blank forms were used "as a front" so that Mr Franks could avoid "a prison sentence". It is also alleged that Mr Morton had been informed that it was industry standard to pay 25% of net profits for being used as a "front". A claim is made that the Franks interests should pay 25% of the profits of the companies to the creditors of Budlyre and Truefeat apparently because Mr Morton had "exposed himself" on behalf of Budlyre, Truefeat and Benelan. The basis for such a claim is not explained.
Once again, allegations of unjust enrichment are made against the Franks Trust and Mr Franks.
Paragraphs 74-161
These paragraphs commence with some allegations relating to the circumstances in which Mr Morton met a Mr Schaffel and Mr Franks. Reference is made to affidavits filed on behalf of the Franks' interests in the Franks proceedings.
The pleadings then recount the circumstances in which Truefeat, Budlyre and Benelan were purchased in Australia as shelf companies and specify the shareholders and directors of those companies.
It is pleaded that solicitors were instructed to prepare declarations of trust in respect of Mr Morton's shareholding. The solicitors, however, made errors, for example, by declaring a trust from Mr Morton to Mr Schaffel for Truefeat when none was required or requested.
It is then pleaded that the Franks interests agreed in 1991 that Mr Morton should have 25% of the Franks' businesses. From then on Mr Morton contributed to the conduct of the businesses. In 1992 Mr Schaffel gave Mr Morton his interests in the Australian companies.
In 1994, shares in Truefeat were issued to Mr Morton, but no declarations of trust were signed by him.
The statement of claim then sets out the details of the declaration of trust presented to the Court in the Franks proceedings.
It is alleged that in 1991 Mr Schaffel supplied moneys on behalf of himself and Mr Morton to purchase shares in Truefeat and Benelan. However, the money to purchase shares in Budlyre and another company were provided by the Franks interests.
Mr Morton denies holding "a share" (it is not clear in what company or companies) in trust for the Franks interests.
In April 1992 Mr Schaffel is said to have
acknowledged that Mr
Morton held his share in Truefeat in his own right.
The result of these allegations is said to be that the Franks Trust held 50% of the issued shares in Truefeat, Budlyre and Benelan in trust for Mr Morton. It also held shares in other companies, not parties, in trust for the creditors of Truefeat.
By reason of declarations of trust made by Mr Franks, Mr Morton was entitled to 50% of the profits of Truefeat, Budlyre and Benelan.
Further reference is then made to the conduct of the Franks proceedings. It is alleged that orders made in the proceedings were not properly served and that Mr Morton "was not a party to the proceedings". Nor did Mr Morton, Truefeat, Budlyre and Benelan receive copies of the orders made by Hill J. on 24 October 1994. Accordingly, the orders were valid. The pleadings also allege that the order for payment of USD 25,000 was not valid. The applicants demand the return of all shares and property affected by the orders made by Hill J.
Paragraphs 162-190
The substance of these paragraphs is a series
of allegations concerning the conduct or activities of the solicitors acting
for Truefeat, Budlyre and Benelan and of the solicitors acting for Mr Morton in
the Franks proceedings. It is not
necessary to repeat the allegations, most of which do not appear to be capable
of being relevant to the proceedings.
(It may be that the object
of the allegations is to show some concerted action on the part of the
solicitors to harm Mr Morton. However,
the facts alleged, even if true, would not support such a plea.)
It is ultimately alleged that there was a "common interest" between the various solicitors, the Franks interests and the administrator which meant that the outcome of the Franks matter was "predetermined". The applicants claim damages.
Paragraphs 191-210
These paragraphs concern the actions of the administrator and Court & Co in relation to the deed of arrangement. It is alleged that Mr Morton and an entity called "Blue Diamond Services" were incorrectly rejected as creditors of Truefeat and Budlyre and were denied votes at the respective creditors' meetings held on 19 December 1994. The minutes of those meetings were altered to remove reference to Blue Diamond Services' attendance at the meeting. (The relationship between Mr Morton and Blue Diamond Services is not explained.)
The administrator wrongly accepted proofs of debt lodged on behalf of the Franks interests. He failed to supply a copy of the deed of company arrangement to creditors prior to the meetings and supplied financial information which was false. False minutes of Truefeat and Budlyre were prepared and supplied to the Australian Securities Commission.
The administrator acted in the interests of the
Franks Trust and
Mr Franks and not in the interests of creditors. He also failed to include certain assets of
Truefeat and Budlyre (including Budlyre's mailing list) in the listed assets of
those companies.
Damages are claimed on behalf of the applicants and the creditors of Truefeat and Budlyre. It is said that all respondents were unjustly enriched at the expense of Mr Morton and the creditors of Truefeat and Budlyre.
Paragraph 211
Paragraph 211 alleges that, on 24 November 1994, the Franks Trust and Mr Franks negotiated the sale of certain assets of Mack Studios and Truefeat to the shareholders of Benelan. The assets included copyright material held by Mack Studios and Truefeat's mailing list.
The Franks interests were not authorised to sell these assets and neither Mack Studios nor Truefeat nor the creditors of Truefeat received any financial gain.
It is also alleged that the assets of Budlyre were under the control of the administrator and that Budlyre received no gain from the sale to Mr Franks of the equipment belonging to Budlyre.
Paragraphs 212-216
The statement of claim alleges that the creditors of Truefeat and Budlyre received no dividends, but the administrator (and his firm) received moneys from those two companies.
The administrator paid for the administration of Budlyre from the assets of Truefeat.
Contrary to the administrator's assertions, funds are available for distribution to the creditors of both companies.
Paragraphs 217-220
These paragraphs allege that the Franks Trust and Mr Franks nominated the administrator, prior to his appointment, as an investigative accountant to examine the affairs of Truefeat, Budlyre and other companies. It is alleged that the administrator and Court & Co have failed to acknowledge this to the applicants. The connection between these paragraphs and any relief claimed by the applicants is unclear.
Paragraphs 221-224
The statement of claim pleads the appointment of the administrator (Mr Vouris) as receiver during the proceedings before Hill J. It also pleads the termination of that appointment on 24 October 1994. It then appears to be alleged that Truefeat received $45,000 from funds provided by Mr Franks on behalf of Budlyre and Benelan. This is said to have unjustly enriched those companies and the Franks interests. The point of these allegations is obscure.
Paragraphs 225-226
It appears to be alleged that the Franks
interests were incorrectly accepted as creditors of Truefeat in respect of the
supply of video box covers.
It is also alleged that the Franks interests made commitments to Mr Morton to supply funds for the purpose of Truefeat, Budlyre and Benelan. An allegation of unjust enrichment is made, but it is not clear how it relates to the pleaded commitments.
Paragraphs 227-228
It is alleged that Budlyre provided funds to the Franks interests and then US associates, and that Budlyre has not been reimbursed. The administrator failed to recover these funds and to disclose the asset in the financial records of Budlyre.
Similar allegations are made in respect of funds said to have been advanced by Budlyre to Mr Schaffel.
Paragraph 229
The administrator is alleged to have reported that companies to which they were accountants were recorded as creditors of Truefeat rather than debtors.
Paragraph 230
It is alleged that Mr Morton was an employee of Budlyre and is owed salary and holiday pay. Nonetheless, he has not been accepted as a creditor of Budlyre.
Paragraph 231 (2nd paragraph so numbered)
It is alleged that Mr Morton lent moneys to Truefeat over the period 1992-1995. The administrator and Court & Co prepared Truefeat's accounts and did not record the advances.
Paragraphs 232
It is alleged that Mr Morton was employed by Truefeat from 1992 to July 1994 and is owed salary for that period. Nonetheless, he was not accepted as a creditor of Truefeat.
Paragraphs 233-235
These paragraphs repeat allegations made earlier and also allege that Benelan is a non-trading company.
Paragraphs 234-236 [Numbering repeated]
It is alleged that Mr Morton has not been reimbursed for his efforts as an employee of Benelan. Moreover, Truefeat has provided services for Benelan but has not been reimbursed.
Paragraph 236 [Numbering repeated]
Paragraph 236 relates to the judgment for USD 25,000 and the initiation of the bankruptcy proceedings by Budlyre. It is alleged (apparently correctly) that this sum was paid and, further, that the creditors of Budlyre did not benefit from the payment.
Paragraph 237
Paragraph 237 appears to allege that entities recorded as creditors of Benelan have not supplied the goods to that company.
Paragraph 238
It is alleged that in 1994 the administrator, Truefeat, Benelan and the Franks Trustees settled certain proceedings, apparently in the US. Mr Morton was not notified and the administrator did not include this in a report to the Federal Court. The settlement is said not to have been in the interests of Truefeat or of Mr Morton.
Other allegations, which are not easy to follow, are made about the failure to reimburse Truefeat and Budlyre in respect of moneys laid out by them relating to video box covers.
Paragraph 239 [Second paragraph so numbered]
It is alleged that moneys owed to Budlyre were paid to employees of Truefeat and not recovered by the administrator.
Paragraph 240
It is alleged that Truefeat met legal expenses incurred by Benelan in pursuing action for breach of copyright against Australian "adult operators". These moneys have not been reimbursed to Truefeat.
Paragraph 241 [Second paragraph so numbered]
It is alleged that the administrator recommended termination of the receivership, and that this unjustly enriched the administrator, Budlyre, Benelan and the Franks interests.
Paragraph 244
Paragraph 244 alleges that the administrator failed to reveal or recover an asset of Truefeat in the form of a company called "X-Citement Express Pty Ltd".
Paragraphs 245-249
The statement of claim denies that Mr Morton is indebted to Truefeat. It also pleads the application by the administrator for approval of his remuneration as the receiver of Truefeat and (presumably) Budlyre. The point of this pleading is not clear, although it may be intended to challenge the remuneration approved by Hill J.
Paragraphs 251-254
These paragraphs allege the supply of copyrights in circumstances that are not particularised or clarified. The point of the pleading is unclear.
Paragraph 255
Paragraph 255 contains allegations against solicitors that are plainly irrelevant to any cause of action that might be available against the respondents.
Paragraphs 256-260
Paragraph 256 alleges that Truefeat conducted a mail order business. The administrator advised creditors of Truefeat that the mailing lists were owned by Benelan. This information was false.
It is then alleged that Mitchell (formerly Truefeat) and Benelan are trading illegally by distributing unclassified videos. It is further alleged that an Anton Piller order was obtained in the Franks proceedings. The point of these allegations is not clear.
Paragraph 261-262
Paragraph 260 alleges that Mr Franks has not repaid moneys borrowed from Budlyre in 1994. It is also alleged that Benelan owes moneys to Truefeat.
Paragraph 263
Paragraph 263 alleges that the administrator did not keep separate the funds of Truefeat while under receivership. The paragraph does not specify what the receiver is alleged to have done, nor does it identify the funds said to have been intermingled.
Paragraphs 264-266
These paragraphs allege payments by Mr Franks on behalf of Truefeat and Budlyre, but also seem to allege that those companies did not receive the moneys. Although the usual unjust enrichment allegation is made, it is obscure what cause of action is intended to be pleaded by these paragraphs.
Paragraphs 257-275
These paragraphs contain a miscellany of
allegations, including an alleged conflict of interest by the legal
representatives of the respondents; an alleged failure of Benelan to reimburse
Truefeat for certain funds; and an improper admission of proof of debt put
forward by Benelan under a licensing agreement.
Paragraph 272
Paragraph 272 is a lengthy paragraph, complaining about the means by which the orders in the Franks proceedings were implemented and the conduct of certain aspects of the administration proceedings. The relationship between this paragraph and any relief sought is obscure.
Inspection of Statement of Claim
Order 46, rule 6(1)(a) of the Federal Court Rules prevents a person who is not party to the proceedings from inspecting, without leave, documents filed in the registry which are subject to a confidentiality order made by the Court. The rule provides as follows:
"6.(1) Except with the leave of the Court or a Judge, a person who is not a party to the proceedings may not search the registry for or inspect -
(a) any judgment, order, transcript of a proceeding, or other document which the Court has ordered remain confidential ...". [Emphasis added].
Because of the apparently scandalous and
irrelevant nature of some of the allegations made in the statement of claim I
made an order in the course of the proceedings that the application and
statement of claim remain confidential to the parties and their legal
representatives, pending further order.
That order remains in force.
Having regard to the conclusions I have reached, and
which I explain in the remainder of this judgment, there is no occasion to vary
or terminate this order.
THE STRIKE OUT APPLICATIONS
The General Principles
The respondents in the administration proceedings rely on the power conferred on the Court by the Federal Court Rules, Order 11, r.16:
"16.Where a pleading-
(a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading;
(b) has a tendency to cause prejudice, embarrassment or delay in the proceeding; or
(c) is otherwise an abuse of the process of the Court,
the Court may at any stage of the proceeding order that the whole or any part of the pleading be struck out."
They also rely on Order 20, r.2 to support their application that the proceedings should be dismissed. This rule provides as follows:
"2(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) no reasonable cause of action is disclosed;
(b) the proceeding is frivolous or vexatious; or
(c) the proceeding is an abuse of the process of the Court,
the Court may order that the proceeding be
stayed or
dismissed generally or in relation to any claim for relief in the proceeding.
2(2) The Court may receive evidence on the hearing of an application for an order under sub-rule (1)."
Reference should also be made to Order 41, r.5 which empowers the Court to strike out any matter which is "scandalous, vexatious or oppressive".
The authorities (some of which were referred to
by Mr Morton) make it clear that these
powers must be exercised with "exceptional caution". A case must be very clear indeed to justify
the summary intervention of the Court to deny a litigant the opportunity to
present his or her case to the Court.
Once it appears that there is a real question to be determined, and the
rights of the parties depend on it, the Court should not dismiss the action as
frivolous and vexatious and an abuse of process: General Steel Industries Inc v Commissioner for Railways (NSW)
(1964) 112 CLR 125, at 129-130, per Barwick CJ; Dey v Victorian Railways Commissioners (1949) 78 CLR 62, at 91, per
Dixon J. Of course, if argument
demonstrates that the applicant's case is so clearly untenable that it cannot
possibly succeed, the Court has power to strike out the statement of claim: General Steel, at 130. For this purpose it is assumed that
allegations of fact made in the statement of claim could be established at
trial: Empire Shipping Co Inc v Owners of
Ship "Shin Kobe Maru" (1991) 32 FCR 78 (FCA/Gummow J.), at
80. See also National Mutual Property Services (Australia) Pty Ltd v Citibank
Savings Ltd (1995) 132 ALR 514 (FCA/Lindgren J.), at
528-529.
The authorities have recognised that the defects in a statement of claim may be such that the objectionable material is so closely intertwined with other matters that the pleadings as a whole would tend to embarrass the fair trial of the action: Coe v Commonwealth of Australia (1979) 53 ALJR 403, at 409; 24 ALR 118, at 132, per Jacobs J.; Turner v The Bulletin Newspaper Company Pty Ltd (1974) 131 CLR 69, at 87-88, per Menzies J. This principle has been applied by judges of this Court where, although some cause of action might be able to be spelled out of the statement of claim, the failure to plead material facts or the confusion in the pleading has a tendency to cause prejudice, embarrassment and delay in the proceedings: The Commonwealth Industrial Gases Ltd v Top Australia Ltd, FCA, O'Loughlin J., 16 April 1993, unreported, at 20; Leaney v Olmstead Pty Ltd, (1994) 51 FCR 240 (FCA/Branson J.), but on this point see the unreported decision (20 June 1994) at 14. Whether the defects are such as to bring down the whole statement of claim is a matter of degree: Bride v Stewart, FCA, French J., 18 January 1990, unreported, at 8-9.
The proper approach to a case pleaded by an unrepresented litigant has been helpfully analysed by McLelland J. in Tardy v The Secretary of the Department of Community Services and Health, S Ct NSW, 9 October 1990, unreported at 2-4. His Honour was dealing with a statement of claim prepared by a lay person, which his Honour described as
"a polemical document of a discursive and argumentative nature which includes extravagantly expressed assertions of criminal and immoral conduct and propensities on the part of numerous persons".
Because the case is unreported, it is useful to quote an extract from his Honour's judgment:
"As was said in Wentworth v Rogers (No 5) 6 NSWLR 534 at 536:
"Persons unfamiliar with the rules of pleading and the technicalities which surround the drafting of a statement of claim in adequate and permissible legal form are inevitably, if unrepresented, at a disadvantage. Courts should approach the peremptory termination of the litigation with special care to ensure that, within the possibly ill-expressed and unstructured statement of the legal claims sought to be ventilated, there is no viable cause of action which, with appropriate amendment of the pleading and a little assistance from the court, could be put into proper form. If this can be done, the court should avoid the summary termination of the proceedings for this will prevent the court from examining any merits of the case, once the statement of claim is struck out."
On the other hand the Court "must...have regard not merely to the litigant in person but also to the position of the other party or parties concerned and to what is required, in justice, to prevent the unnecessary expenditure of public and private resources" (Corporate Affairs Commission v Solomon, Court of Appeal, unreported, 1 November 1989 per Mahoney AP).
The general approach which a Court should take to proceedings involving a litigant in person is explained in the following passages from the judgements in Rajski v Scitec Corporation (Court of Appeal, unreported, 16 June 1986):
'In my view, the advice and assistance which a litigant in
person ought to receive from the court should be limited to that which is
necessary to diminish, so far as this is possible, the disadvantage which he or
she will
ordinarily suffer when faced by a lawyer, and to prevent destruction from the
traps which our adversary procedure offers to the unwary and untutored. But the court should be astute to see that it
does not extend its auxiliary role so as to confer upon a litigant in person a
positive advantage over the represented opponent. ...At all events, the absence of legal
representation on one side ought not to induce a court to deprive the other
side of one gist of its lawful entitlement.
...An unrepresented party is as much subject to the rules as any other
litigant. The court must be patient in
explaining them and may be lenient in the standard of compliance which it
exacts. But it must see that the rules
are obeyed, subject to any proper exceptions.
To do otherwise, or to regard a litigant in person as enjoying a
privileged status, would be quite unfair to the represented opponent.' (per Samuels JA).
'Where a party appears in person, he will ordinarily be at a disadvantage. That does not mean that the court will give to the other party less than he is entitled to. Nor will it confer upon the party in person advantages which, if he were represented, he would not have. But the court will, I think, be careful to examine what is put to it by a party in person to ensure that he has not, because of the lack of legal skill, failed to claim rights or to put forward arguments which otherwise he might have done." (per Mahoney JA).
The Effect of Deregistration
The respondents submit that the statement of claim, insofar as it pleads a cause of action for or on behalf of Mack Studios or Update, is bound to be struck out. This is because both of these companies have been dissolved and have ceased to be legal persons. Accordingly, proceedings cannot be instituted in their name and any proceedings already instituted in their name cannot proceed.
In my view, this submission is correct. A company registered
under the Corporations Law is, inter
alia, capable of suing and being sued and of holding property:
s.123(2)(c),(e). But upon dissolution
the company ceases to be a legal person: it becomes a "non-existent
person": United Service Insurance Co
Ltd (In Liq.) v Lang (1935) 35 SR (NSW) 487 (FC), at 495, per Jordan
CJ. Under the Corporations Law,
the property (including choses in action) of the dissolved corporation vests in
the Australian Securities Commission: s.9 (definition of "property"),
s.576(1). Upon the court becoming aware
that the plaintiff or applicant is a non-existent person, it will not allow the
action to proceed: United Service, at
497. See also Sweeney & Vandeleur Pty Ltd v BNY Australia Ltd (1993) 11 ACSR
356 (SCt NSW/Cole J.), at 359-360; P E Von Nessen, "The Dissolution and
Reinstatement of Companies" (1993) 67 ALJ 427.
The Corporations Law provides for the reinstatement of deregistered companies in certain circumstances: s.574. Mr Morton's written submissions deal at length with the process whereby the second and third applicants might obtain reinstatement. However, as Cole J. pointed out in Sweeney & Vandeleur v BNY (at 360)
"[t]he fact that there exists a statutory provision which may result at some future time in a resurrection from dissolution effective, because of the statutory provision, from the date of dissolution does not mean that, pending that future occurrence flowing from a possible future exercise of the statutory power to resurrect, the company continues to exist."
Paragraphs 1-20 and 21-41 of the statement of
claim appear to
plead, in part, causes of action on behalf of Mack Studios and Update, although
some of those paragraphs seem to put forward a case on behalf of Truefeat or
its creditors. It may be that other paragraphs (such as paragraph 211) are also
intended to allege a cause of action on behalf of one of the dissolved
companies. None of these allegations can
be permitted to stand while the companies remain deregistered.
The same is true of any allegations against the dissolved companies, such as the pleading that Mr Morton is owed wages by Update. Quite apart from the fact that Update is an applicant for which Mr Morton purports to act, an action cannot be maintained against a deregistered company.
Res Judicata, Issue Estoppel and Anshun
The respondents submit that substantial segments of the statement of claim are liable to be struck out because they infringe the principle of res judicata or issue estoppel, having regard to the final orders made by Hill J. in the Franks proceedings. These orders, it will be recalled, included dismissal of Mr Morton's cross-claim. Alternatively, they rely on the principle in Port of Melbourne Authority v Anshun, contending that some of the relief sought by Mr Morton in the present proceedings could have been sought by him in the Franks proceedings.
The distinction between res judicata and what is usually known as issue estoppel was authoritatively stated by Dixon J. in Blair v Curran (1939) 62 CLR 464, at 532:
"...in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order."
See also Anshun, at 597; Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502, at 507. In Rogers v The Queen (1994) 181 CLR 251, at 273-274, Deane and Gaudron JJ. accepted that there was a "real distinction" between the two concepts. However, their Honours rested both concepts on the policy that a judicial determination should be "final, binding and conclusive".
Res judicata applies to a final judgment. However, a judgment does not lose the quality of finality merely because one party is entitled to apply to have it set aside, for example, because that party failed to appear at a hearing. As Kirby P. said in Linprint Pty Ltd v Hexham Textiles Pty Ltd (1991) 23 NSWLR 508, at 518:
"where the judgment is on its face final, the mere fact that a party has a privilege to apply to have that judgment set aside cannot convert it to a contingent or provisional judgment forever flawed and incapable of giving rise to res judicata."
See also Chamberlain v DCT, at 508, Marks v National & General Insurance Co Ltd (1993) 114 FLR 416 (S Ct ACT/Miles J.), at 420.
For issue estoppel to apply, the issue must
have been the subject
of adjudication in previous litigation between the same parties or their
privies: Ramsay v Pigram (1968) 118
CLR 271; Azzopardi v Bois [1968] VR
183 (Adam J.), at 185. It is not
necessary that the issue be resolved after a contested hearing. For example, an estoppel may arise in
relation to an issue admitted in the earlier proceedings: Hoystead v Commissioner of Taxation [1926] AC 155 (PC), at 165-166;
Cachia v Isaacs (1985) 3 NSWLR 366
(CA), at 381, per Hope JA. However, the
issue estoppel is confined to the ultimate facts which form the ingredients in
the relevant cause of action: Blair v
Curran, at 531-532. The estoppel
does not extend to findings of fact which, although probative of the ultimate
issue, are not necessary to, or are not the legal foundation of the decision
made: Rogers v The Queen, at 262, per
Brennan J; at 274, per Deane and Gaudron JJ; at 283, per McHugh J.
In the Franks proceedings, Hill J. ordered Mr Morton to pay USD 25,000 to Budlyre. His Honour declared that Mr Morton held all shares in Truefeat and Benelan in trust for the Franks Trust. He also dismissed Mr Morton's cross-claim, seeking a declaration that Mr Franks held one half of the issued shares in Benelan in trust for Mr Morton. An appeal from his Honour's judgment was dismissed by the Full Court. The fact that Mr Morton chose not to appear before Hill J. on 24 October 1994 does not render the principles of res judicata or issue estoppel inapplicable.
The substance of most of the allegations made
in paragraphs 74-161 of the statement of claim is that the orders made by Hill
J.
should be set aside and other orders made in relation to the beneficial
interests in the shares held by Mr Morton in Truefeat and Benelan. That section of the statement of claim seeks
orders that the Franks Trust holds 50% of the shares in Truefeat, Budlyre and
Benelan in trust for Mr Morton. Such
orders could not be made consistently with the orders made by Hill J.
(including the dismissal of Mr Morton's cross claim, in which he sought orders
that shares in Benelan were held in trust for him). To the extent that the statement of claim
seeks to challenge the order for payment of USD 25,000, it attempts to
contradict and relitigate the orders made by Hill J. I should add that all relevant parties (the
Franks Trust, Mr Franks, Mr Morton, Truefeat, Benelan and Budlyre) were parties
to the Franks proceedings.
In my view, the principle of res judicata applies to these allegations. As I have said earlier, it is no barrier to the application of that principle that the orders were made by Hill J. on 24 October 1994 in Mr Morton's absence.
If this conclusion is incorrect, the principle of issue estoppel has the same effect. The orders made by Hill J. necessarily involved findings adverse to Mr Morton on issues of fact that are central (so far as I am able to follow it) to the case he has pleaded. The simple point is that litigation is "final, binding and exclusive" and must be brought to an end.
It is therefore not necessary to deal with the
principle in
Anshun. However, that principle
applies to issues that could have been raised in cross-claims, at least where
the cross-claim is intimately connected with the principal claim: Bryant v Commonwealth Bank of Australia
(1995) 57 FCR 287 (FC), at 297-298. It
is likely, therefore, that the conclusion I have already expressed would also
follow from the application of the Anshun
principle to the circumstances of the present case.
In his written submissions, Mr Morton foreshadowed his intention to institute separate proceedings to claim damages on the ground that the Franks proceedings were an abuse of process. Any such claim can be addressed if and when it is made.
The Deed of Company Arrangement
The respondents submit that the effect of the deeds of company arrangement entered into by Budlyre and Truefeat was to extinguish any claim made by Mr Morton as a creditor of those companies, in relation to debts said to have arisen on or before 31 October 1994. They also submit that, insofar as the applicants purport to make claims on behalf of other entities, in respect of debts said to be due to those entities by Budlyre and Truefeat, those claims are extinguished by operation of the deeds.
The Corporations Law provides that a
deed of company arrangement (see s.444B(6)) binds creditors of the company, so
far as concerns claims arising on or before the day of specified in the deed
under s.444A(4)(i) of the Corporations Law: s.444D(1). The
day specified in each of the deeds is 31 October 1994. The deeds provide (cll.7.1, 8.1) that all
creditors must accept their entitlements under the deed in full satisfaction of
their claims and that, if the administrator has paid to the creditors all their
entitlements under the deed, then all debts arising on or before the relevant
date are extinguished. Thus, any debts
of the companies which came into existence on or before 31 October 1994, prima facie at least, have been
extinguished.
The Corporations Law also provides that the Court has power to terminate a deed of company arrangement if satisfied of certain matters, such as the giving to creditors of false or misleading information: s.445D(1). Furthermore, s.445G of the Corporations Law empowers the Court to declare a deed, or a provision of it, to be void "where there is doubt, on a specific ground, whether [the deed] was entered into in accordance with [Part 5.3A] or complies with [Part 5.3A]. However, no such orders have been made in the present case and the administration of the deed is now complete. Moreover, s.445H provides that the termination or avoidance, in whole or part, of a deed of company arrangement does not affect the previous operation of the deed.
In my opinion, the statement of claim, in its present form, is liable to be struck out insofar as it seeks to assert claims against Truefeat and Budlyre that are subject to the deed of company arrangement. Such claims are made (or might be intended to be made) by Mr Morton in paragraphs 229-232. They also appear elsewhere in the statement of claim.
The application initially filed in the proceedings sought, inter alia, orders pursuant to s.445D of the Corporations Law terminating the deeds of company arrangement. These prayers for relief were removed from the amended application. The relief sought in the statement of claim now includes orders that the creditors' meetings of 19 December 1994 "be void" and that the deeds of company arrangement also "be void".
It may be open to Mr Morton to plead a case seeking orders under the Corporations Law declaring the deeds void, if the material facts supporting such a case are pleaded in an appropriate manner. Although Beazley J. has held that Mr Morton was not a creditor of either Truefeat or Budlyre at the institution of the administration proceedings, Mr Lever appeared to accept that he (Mr Morton) had subsequently taken an assignment of debts. Mr Lever also made it clear in the course of argument that the parties he represented would not take the point that Mr Morton was not a creditor at the date the proceedings commenced, since it was open to him to institute fresh proceedings.
However, in my opinion, the statement in its present form, insofar as it pleads a case for declaring the deeds void, should not be permitted to stand. The allegations that (presumably) are intended to support the claim are scattered throughout the statement of claim, are extremely difficult, if not impossible, to follow and do not set out the material facts clearly. The precise grounds for seeking an order under s.445G of the Corporations Law (if that is the provision relied on by Mr Morton) are not specified. Moreover, the statement of claim does not address the question of how an order made under s.445G can assist in relation to other relief, having regard to the terms of s.445H.
Failure to Plead a Cause of Action
The respondents attack other portions of the statement of claim as an abuse of process, in substance, because the pleading does not specify the material facts supporting a cause of action or simply because what is pleaded is insufficient to support any cause of action. The Federal Court Rules provide (Order 11, r.2) that
"(a)a pleading of a party shall contain, and contain only, a statement in summary form of the material facts on which he relies, but not the evidence by which those facts are to be proved".
The Rules also require the pleading to state the necessary particulars of any claim: Federal Court Rules, Order 12, r.1. (I leave to one side the requirement in Order 11, r.3 - which has flagrantly been breached - that a pleading shall be as brief as the nature of the case requires.)
In my opinion, segments of the statement of claim should be struck out for failure to plead the material facts in support of a cause of action.
Paragraphs 42-56 contain a series of
allegations, but they do not support an identifiable cause of action and are
otherwise plainly
objectionable. For example, it is
pleaded that various respondents have attempted to bankrupt Mr Morton, but it
is not clear what, if anything, is said to flow from this pleading. Mr Morton denies misappropriating funds, but
asserts - without any particulars or even identification of the funds to which
he is referring - that the trustees of the Franks Family Trust, Mr Franks, the
administrator and Court & Co misappropriated the funds subject to the
charges. Pleadings of this sort cannot
be allowed to stand.
Paragraphs 57-73 (the "blank form" allegations), insofar as they are intelligible, do not plead a cause of action open to any of the applicants. Mr Morton's explanation of these paragraphs in his written submissions does not advance matters.
It is not clear what cause of action, if any, the allegations in paragraphs 162-190 (which relate to various solicitors) are intended to support. Some of the allegations are manifestly irrelevant to any possible cause of action open to the applicants and verge on the scurrilous. If it is intended to plead a case warranting the setting aside of the orders made by Hill J. (and affirmed on appeal) they are incapable of doing so.
The purpose of a number of other paragraphs is unclear. These include paragraphs 217-220, 225-226, 236, 245-249, 251-254, 255, 258-259, 264-266, 272. It would be an abuse of the Court's process to allow these to remain.
The statement of claim makes repeated reference to unjust enrichment (see paragraphs 19-20, 56, 73, 190, 210, 224-228, 231, 232, 235, 266). No attempt is made to demonstrate how the elements of a cause of action based on unjust enrichment of the respondents have been satisfied. Although Mr Morton's written submissions refer to authorities on the principle of unjust enrichment they do not explain how the allegations in the statement of claim relying on that principle can be sustained.
Lack of Standing
The respondents submit that many of the allegations made in the statement of claim purport to be on behalf of Truefeat (now Mitchell) and Budlyre and that Mr Morton has no standing to maintain an action on behalf of those companies or in their name (if that is what he has attempted to do).
The obscurity of the pleading makes it very difficult to characterise the nature of the claim being put forward. The relief sought in the statement of claim (which is not the same as that sought in the amended application) suggests, in part, that Mr Morton is seeking relief on behalf of or in the name of Truefeat. For example, paragraph 16 of the orders sought requires Budlyre and Benelan to reimburse Truefeat "any all [sic] monies owed". Some of the allegations suggest, however obscurely, that moneys that should have been paid to Truefeat were not paid to that company. To the extent that the statement of claim purports to claim relief on behalf of Truefeat (or, for that matter, any of the other respondents) it should be struck out, at least in the absence of pleadings that demonstrate clearly Mr Morton's entitlement to seek relief on behalf of Truefeat or the other companies.
The Remainder
The defects I have identified in the statement of claim as presently pleaded would result in the bulk of the 110 pages being struck out. It is possible that a meticulous process of sifting through the remainder might allow some plausible causes of action to be discerned, albeit with great difficulty.
I have already referred to the fact that Mr Morton claims an order (in effect) declaring the deeds of company arrangement void. Other paragraphs in the statement of claim make allegations that the administrator (and the firm of which he was a member), in substance, failed to discharge duties they were bound to discharge. Some of these allegations are made in paragraphs 192-210. However, allegations are scattered throughout the statement of claim in no particular order and without being linked to particular relief (see, for example, paragraphs 225-228, 238).
In particular, it seems to be alleged that creditors were given false or incomplete information and that the administrator failed to obtain assets of Truefeat and Budlyre in the interests of the creditors of those companies. It is also alleged (without particulars) that the administrator favoured the interests of the Franks family over those of other creditors.
I have not, of course, formed any view as to whether any of these allegations can be substantiated. Moreover, Mr Morton may face difficulties in establishing a claim to substantive relief in his capacity as a creditor of Truefeat and Budlyre, having regard to the provisions of the Corporations Law. But I cannot at this stage rule out the possibility that parts of the statement of claim might provide the basis for a case which could survive the test applicable in a strike out application. The authorities appear to accept that an administrator owes fiduciary duties, although the precise nature of those duties and the persons to whom they are owed may be a matter for debate: James v Deputy Federal Commissioner of Taxation (1988) 88 ATC 4812, (NSW CA) at 4818-4819, per Mahoney JA; Commissioner of Taxation v B & G Plant Hire Pty Ltd (1994) 14 ACSR 283 (FCA/Gummow J.), at 291.
I include within the category of claims that Mr Morton might be able to plead, his contention that he is entitled to recover moneys owed to him by Benelan (which has not been subject to a deed of company arrangement and has not been deregistered). Like other allegations in the statement of claim, those against Benelan are not property particularised and are difficult to follow. It may be, however, that they could be put into a form that would pass the relevant tests.
I do not, however, think that the appropriate
course is to tease out that which conceivably might be saved in the statement
of claim. There is simply too much
objectionable material interwoven with that which might support an arguable
case. Too
much of the remainder is neither particularised nor in a form that the
respondents (or the Court) can readily follow.
While it is a question of degree, I am firmly of the view that no part
of the present pleading should be permitted to stand.
Leave to Replead?
The respondents urge that Mr Morton should not be permitted to replead his case. Alternatively, they argue that he should not be permitted to replead except on condition that he meets any costs order made against him, although they recognise that (given Mr Morton's financial circumstances) such an order would be tantamount to refusing him leave. The respondents have a number of powerful arguments on their side.
Mr Morton has shown that he is prepared to file
and rely on lengthy documents in support of his case that are very difficult
for his opponents (and the Court) to follow.
There is no particular reason to think the next version of the statement
of claim will be different in this respect.
The evidence strongly suggests that Mr Morton is quite prepared to
attempt to relitigate issues already resolved against him. His own evidence also suggests that he is
prepared to make extravagant allegations without deigning to provide particulars
(including allegations of misconduct on the part of judicial officers). He is effectively immune from the
constraints imposed by a potential or actual costs order. On his own evidence, he has no means to
satisfy a costs order (other than any claims he may be permitted to make in the
proceedings). Mr Morton's written
submissions
state explicitly that the existence of criminal proceedings against him (which
he attributes to the actions of the Franks interests) "motivates [him] to
continue this matter to the very end".
The respondents have incurred substantial costs in proceedings that show
no signs of reaching a hearing. To allow
Mr Morton to replead will expose them to further substantial costs, perhaps
with relatively little prospect that he will be able to establish any case he
might replead.
I have taken these considerations into account. But it must be remembered that the test for denying a litigant the chance to have his or her day in court is a stringent one. A strike-out application based on the inadequacy of the pleadings is not to be determined by an assessment of the prospects that Mr Morton will be able to make out any case he is permitted to plead. Moreover, if it be relevant, Beazley J. did not dismiss Mr Morton's application for interlocutory relief on the ground that there was no serious issue to be tried, although her Honour considered the case "weak". Attempts should be made to ensure that the costs incurred by the parties are minimised, but the respondents' exposure to costs is not, of itself, sufficient to warrant Mr Morton being denied an opportunity to replead his case.
This does not mean that Mr Morton should be
left at large to replead his case. Any
amended pleading must take account of these reasons for judgment. If the fresh pleading, for example, simply
restates or reformulates allegations I have held are not
open to Mr Morton, the Court should be able to deal with the situation. Moreover, any fresh pleading should be
prepared in conformity with the rules of the Court, to which I have referred.
I think that the appropriate course is to permit Mr Morton and the other applicants to apply for leave to file an amended statement of claim within 42 days. However, in my view, any such application for leave should be accompanied by affidavits, in appropriate form, showing that there are facts which can probably be proved and which, if proved, would support the general statements made in the statement of claim.
A direction requiring such affidavits was made by Lockhart J. in Trade Practices Commission v Australian Iron & Steel Pty Ltd (1990) 22 FCR 305. In that case, his Honour struck out a statement of claim which contained some of the defects of the present statement of claim. In view of the difficulty the applicant had experienced in formulating its case, his Honour considered (at 323) that the opportunity to replead should be conditional upon terms that the proposed amendments be verified by affidavit satisfying the Court that there really were facts which could probably be proved and which, if proved, would support the general allegations in the statement of claim. A similar order was made by Lockhart J. in A. & S. Oayda Investments Pty Ltd v Burns Philp Trustee Company Ltd (In Liq.), FCA, 25 November 1994, unreported.
In this case there has only been one attempt to
formulate a
statement of claim. However, the
pleadings are grossly deficient.
Moreover, as I have said, the evidence shows that Mr Morton is prepared
to make allegations which, on their face, are extravagant. This is not to say that all his allegations
are necessarily without substance. It
does suggest that, in fairness to the other parties who must bear the cost of
continued proceedings, any application for leave to replead should be supported
by affidavit material suggesting that the allegations in the statement of claim
can be sustained. If any amended draft
statement of claim prepared by or on behalf of the applicants purports to plead
a case on behalf of the deregistered corporate applicants, affidavits should be
filed demonstrating that the corporations have been restored to the register
and that they have authorised the application for leave to file the amended
statement of claim or that such an application is otherwise properly made.
I emphasise that no amended pleading can be filed as a matter of right. It will be necessary for Mr Morton and (if they are to remain parties) the other applicants to apply for leave to file an amended statement of claim.
I intend to direct that any further pleading or
draft pleading and any affidavits filed by Mr Morton or the other applicants be
in typewritten form. The Federal
Court Rules do not require pleadings or other documents filed to be
typewritten. Order 41, r.2 requires only
that documents are "clear, sharp, legible and permanent" and do not
bear "any blotting, erasure, or other
alteration as to cause material disfigurement". In my view, much of the material filed does
not meet the standards of legibility required by the Rules. The difficulty of reading voluminous material
rapidly, even where the handwriting is in capital letters, imposes unreasonable
burdens on the other parties and on the Court.
It is relevant that Mr Morton has recently been able to file extensive
typewritten submissions. I think Mr
Morton should continue this practice. In
my view he will be caused no substantial prejudice or difficulty by this
direction.
Mr Morton should pay the costs of the motion to strike out the statement of claim. I have given consideration to whether I should direct that Mr Morton pay those costs as a condition of being granted leave to replead. Having regard to his financial position, such an order would be tantamount to denying him leave to replead his case. I do not think such a course should be taken at this stage. If the next version of the statement of claim (if any) retains the defects of the current statement of claim, the position may well be different.
TRANSFER OF THE PROCEEDINGS
As I have previously observed, Mr Morton
elected to move from Brisbane to Canberra in early July 1996. Accordingly, he no longer pressed his motion
that the proceedings be transferred to the Queensland Registry of the Court
(from which they had been transferred by order of Spender J. on 21 July
1995). Rather, he
sought the alternative order, that the proceedings be transferred to the
Australian Capital Territory Registry.
In part, Mr Morton relied on his current (albeit short term) residence in Canberra and the same health and financial considerations that he used to support his unsuccessful application for adjournment of the proceedings. He also relied on the fact that (as the evidence established) Truefeat, Budlyre and Benelan are companies registered in the Australian Capital Territory and carrying on business there. Mr Morton asserted that certain documents are located in Canberra.
Mr Morton acknowledged that the administrator and his firm were based in Sydney. However, he contended that there would be no substantial hardship in their having to defend the proceedings in Canberra, particularly as they had conducted part of the administration of Truefeat and Budlyre in that city. While the Franks were residents of the United States, Mr Morton submitted that it was a matter of indifference to them whether the proceedings remained in Sydney or Canberra.
In my view, if the case had reached the stage where pleadings were complete and the matter was approaching a hearing there might be some force in Mr Morton's submissions. I express no firm view on the question, since a great deal will depend on the issues to be resolved at a hearing (if one is to be held) and the place of residence, not merely of the parties, but of any witnesses to be called at the hearing.
Mr Morton submitted that most of his witnesses at the hearing would be from Canberra. But at this stage it is not known what issues, if any, the applicants will be permitted to raise in such amended pleadings as they may seek leave to file. Moreover, Mr Morton was not able to explain satisfactorily why the people to whom he referred (who were mostly creditors of Truefeat and Budlyre) were likely to be witnesses in his case.
In my opinion, it is not appropriate at this stage to direct the proceedings to be transferred to the Australian Capital Territory Registry. It would be productive of very great inconvenience to the parties and the Court and cause substantial additional expense if another judge were required to deal with any application for leave to file an amended statement of claim. A judge of this Court has already ordered the transfer of the proceedings from Brisbane to Sydney. The pressing task is to determine whether the applicants should have leave to replead and, if so, on what issues. That is most conveniently dealt with in Sydney.
I appreciate that this course will cause some inconvenience to Mr Morton. However, I do not consider the inconvenience substantial and certainly not enough to warrant transfer of the proceedings to Canberra.
If and when pleadings are closed and the issues
are clarified, it will be open to Mr Morton to raise the question of transfer
again. I think the appropriate course is to dismiss the motion
seeking transfer of the proceedings, but without prejudice to renewal of the
application after the close of pleadings.
The costs of the motion should be costs in the respective causes.
THE ADMINISTRATION AND BANKRUPTCY PROCEEDINGS
Mr Morton submitted that orders should be made that the administration and bankruptcy proceedings be heard together. As I followed him, Mr Morton contended that the issues in the two sets of proceedings were so interconnected that they should be heard at the same time. He maintained that he had a claim against the substituted petitioning creditor, Mitchell (formerly Truefeat), that was greater than any debt he might owe to Mitchell.
The debt relied on by Mitchell in the bankruptcy proceedings is that said to be created in consequence of the orders made by Hill J. in the Franks proceedings on 24 October 1994 and 17 March 1995. As I understand it, Mr Morton wishes to dispute the validity or effect of these orders although it is as yet unclear what grounds, if any, he intends to rely on to achieve this result, except that he regards the proceedings as an abuse of process. In any event, Mr Morton wishes to rely on a set-off or claim he says he has against Mitchell (Truefeat) arising from pre-administration debts due to him by that company.
Thus far, Mr Morton has not properly pleaded
any case against Mitchell. It is
conceivable that he may be able to do so, consistently with the orders I intend
to make. I am inclined to
think that there will be substantial difficulties in Mr Morton's path, but I
have formed no view as to whether these difficulties are insurmountable.
In my view, the bankruptcy proceedings should take their ordinary course, subject to any directions that the judge conducting the proceedings might impose from time to time. At this stage, it is not clear whether Mr Morton will be permitted to plead a case against Mitchell. Furthermore, if he is permitted to plead such a case it is not yet clear what other causes of action, if any, will be joined in the same proceedings. The judge giving directions in the bankruptcy proceedings may defer the hearing of the application for a sequestration order until the administration proceedings are concluded. He or she may take some other course. Whatever view is taken, it does not seem to me to be appropriate to tie the bankruptcy proceedings to a case which may or may not be permitted to proceed and which may or may not involve allegations supporting a cause of action in Mr Morton against his petitioning creditor.
Accordingly, the motions for the administration and bankruptcy proceedings to be heard together should be dismissed. The costs of these motions, however, should be costs in each cause.
REPRESENTATION OF THE RESPONDENTS
Mr Morton objected to the one firm of
solicitors and the one counsel representing all respondents (other than the
fifth
respondent). He also objected to the legal
representatives, (counsel and solicitors) of the respondents (other than the
fifth respondent) continuing to act for any of the respondents.
One contention put by Mr Morton, if I understood him correctly, was that the solicitors and counsel had acquired confidential information in the course of acting in the proceedings. The nature of this confidential information was not identified and the contention appeared to rest on mistaken assumptions. In any event, this ground was not made out.
Mr Morton's second complaint was that there was a conflict between the position of the administrator of Truefeat and Budlyre and that of the Franks interests, since they were shareholders of Truefeat and Budlyre. Mr Morton was apparently prompted to take this point because of comments made by a Judge of the Court on an unsuccessful application by Mr Morton for leave to appeal against the refusal of Beazley J. to grant an injunction. In the course of argument his Honour observed that
"the administrator has to be impartial as between creditors and shareholders. So I do not see how [counsel] could appear for him and a shareholder."
It was not necessary for his Honour to make a ruling or to deal further with the point.
The authorities suggest that the Court has power to protect itself by ensuring that parties whose interests conflict, by ensuring that it has the assistance of independent counsel representing those interests. The position was summarised by Young CJ in Nangus Pty Ltd v Charles Donovan Pty Ltd (In liq.) [1989] VR 184 (S Ct Vic/FC), at 185-186:
"Mr Southall's second argument however was that the guarantor was not liable under the guarantee for any damages arising from the breach of the lessee's obligations under the lease. If this argument succeeded the whole of the burden of damages payable would be thrown on the first appellant. A clear conflict of interest arose.
Mr Southall assured us that his instructions were that both of his clients, who were represented by the same solicitors, agreed to the course he was pursuing notwithstanding the apparent conflict and upon that assurance we allowed the argument to proceed, reserving the question whether any difficulty would arise in disposing of the appeal.
In view of the conclusions at which we have arrived, no difficulty does arise in our disposing of the appeal. It should not however be assumed that the Court would, on another occasion, allow a similar course to be followed.
The general rule undoubtedly is that counsel ought not to appear for two clients whose interests may conflict: see Halsbury's Laws of England, 4th ed., vol.3, para.1143. The first case cited as authority for that proposition is Day v Ponsonby (1842) 5 I. Eq. R. 24 in which counsel for a plaintiff moved for an order that the Accountant-General should draw on the case in bank to the credit of the cause pursuant to the general allocation report in favour of several persons mentioned in the report. By that report, a certain sum of money, in which the plaintiff was not interested, was allocated to a creditor. The sum was included in the notice upon which counsel moved. The same counsel also moved on a separate brief on behalf of a third person that the money so allocated to the creditor should be paid to the third person. The report of the case is very short and simply records that the Court was of the opinion that counsel could not hold the two briefs.
Another authority is Re Burton, Danby v Burton [1901] W.N. 202 in which counsel
announced upon an originating summons that he appeared for the trustee who had
no beneficial interest in the outcome of the proceedings and also for the life
tenant. The question for determination
on the summons was whether a certain receipt was to be treated as capital or
income. Farwell J. would not allow the
summons to proceed observing: 'It is the duty of the trustee's counsel to
assist the Court and he ought not to argue on behalf of a beneficiary.' Farwell J.'s decision has been continuously
acted upon ever since.
Reference may also be made to Re Morgan, Brown v Jones (1927) 71 Sol.Jo.650 in which Clauson J. said, at p.651: 'The principle is that where trustees are represented by the same solicitors, and one of them is interested in the trust fund beneficially, it is prima facie the solicitor's duty to employ separate counsel to represent the independent trustee in order that the Court may have the assistance of such separate counsel.'
Every case must depend upon its own circumstances but it is important to notice, as Re Burton and Re Morgan show, that the Court is concerned that it should have the assistance of independent counsel for parties whose interests are not identical in the case before it. The Court must necessarily be concerned for its own protection.
For the reasons which I have given it is unnecessary to go further in the present case. It is sufficient to say that where the interests of two parties apparently conflict or may conflict it will be for the Court to say whether there may be a departure from the prima facie rule."
Mr Lever, as I followed him, did not dispute that the interests of the administrator of a company and those of a shareholder might conflict, depending on the circumstances. However, he submitted that there was no difficulty in the present case. This was because the administration had been completed and, in any event, it was not up to Mr Morton to challenge the decision of the respondents to be represented by the one firm of solicitors and the one counsel.
I do not think that the two points relied on by
Mr Lever necessarily provide a complete answer to Mr Morton's contentions.
The statement of claim, despite the obscurity of its language and confused
presentation, is intended to make allegations about the conduct of the
administrator during the course of the administration. As I have indicated, it may be open for Mr
Morton as a creditor of the companies formerly under administration to allege
breaches of fiduciary duty by the administrator. If these allegations are pleaded, and the
pleadings are permitted to stand, the interests of the administrator and the
shareholders of the company may not be identical. This may be so notwithstanding that the
administration has concluded.
Furthermore, as Nangus v Charles Donovan shows, it is open to a party to draw to the attention of the court a conflict or apparent conflict. It is then a matter for the court to determine what action should be taken.
However, I do not think that any conflict has been shown to exist in relation to the matters presently before the Court. The proceedings before me involve a series of interlocutory motions, including an application to strike out Mr Morton's statement of claim. All respondents represented by the same solicitors and counsel appear to have the same interest in relation to the matters argued before me. At least it has not been shown that their interests diverge to such an extent that the Court cannot receive the assistance to which it is entitled. If that position changes, it will be open to the Court to take appropriate steps.
I dismiss Mr Morton's motion seeking orders that the administrator and Vouris & Co be represented separately from other respondents to the proceedings. I make no order as to costs in that motion.
FURTHER EVIDENCE
Some time after filing his written submissions, Mr Morton filed further submissions seeking leave to elicit what he described as "new evidence". I see no basis for reopening the evidence in the case at this late stage and I decline to grant leave.
THE COURT ORDERS THAT:
1. The statement of claim filed on 8 March 1996 by the applicants in Proceedings QG 100 of 1995 be struck out.
2. The applicants in Proceedings QG 100 of 1995 be at liberty to apply to the Court within 42 days from today for leave to file an amended statement of claim, on production of an affidavit or affidavits showing that
(a) there are facts which probably can be proved and which, if proved, would support the general allegations in the proposed amended statement of claim; and
(b) any
corporate applicant is entitled to maintain legal
proceedings on its own behalf and that any such applicant has duly authorised
the making of the application to file the amended statement of claim.
3. Any application for leave to file an amended statement of claim in accordance with paragraph 2, and any affidavit or affidavits in support of such an application, be in typed or word processed form and otherwise in accordance with the Federal Court Rules.
4. The first applicant in Proceedings QG 100 of 1995 pay the costs of the respondents' motions in those proceedings to strike out the statement of claim.
5. The motion in Proceedings QG 100 of 1995 and the motion in Proceedings NP 898 of 1995, seeking orders for the transfer of each proceedings, be dismissed, but without prejudice to the entitlement of the applicants in Proceedings QG 100 of 1995 to file a further motion seeking an order for transfer of the proceedings after the close of pleadings (should leave be granted to the applicants, or any of them, to file an amended statement of claim).
6. The motion on behalf of the applicants in Proceedings QG 100 of 1995 and the motion on behalf of the debtor in Proceedings NP 898 of 1995, seeking orders that both proceedings be heard together, be dismissed.
7. The costs of each of the motions referred to in paragraphs 5 and 6 be costs in the respective causes.
8. The motion dated 19 April 1996 on behalf of the applicants in Proceedings QG 100 of 1995, relating to the legal representation of the respondents, be dismissed.
9. The matter be relisted for directions on Wednesday, 13 November 1996, at 9.30 a.m.
I certify that this and the preceding 68 pages are a true copy of the Reasons for Judgment of the Honourable Justice Sackville.
Associate:
Dated: 18 August, 1996
Heard: 29-31 July 1996, 1 August 1996
Place: Sydney
Decision: 18 September, 1996
Appearances: The applicant was self represented.
Mr F.G. Lever, instructed by Hunt & Hunt Solicitors, appeared for the First, Second, Third, Fourth, Sixth and Seventh Respondents in Proceedings QG 100 of 1995, and for the Petitioning Creditor in Proceedings NP 898 of 1995.
Mr J.T. McGrath, instructed by Lansley Lawyers, appeared on behalf of the Fifth Respondent in Proceedings QG 100 of 1995.
