FEDERAL COURT OF AUSTRALIA

Salim v Loh [2005] FCA 372

PRACTICE AND PROCEDURE – pleadings – strike out motions – complex factual case pleaded – nature of case clear – small amounts of money involved – undue expense in requiring repleading – order dispensing with pleadings – statements of facts and contentions to be filed – security for costs – related proceedings – security for costs in one proceeding where applicant out of jurisdiction – stay order in related proceeding conditioned on non-compliance with security requirement in first proceedings – directions relating to conduct of trial

Trade Practices Act 1976 (Cth) s 52, s 82

Corporations Law ss 995 and 1005

Kurniadi v Loh [2005] FCA 49 cited

IWAN SALIM v SIMON THUANG CHYE LOH, ROBERT ASHMAN, STEPHEN WILLIAM MARSHALL, NEIL HENRY POLLARD  and OSTRICH MEAT & MARKETING COMPANY (AUSTRALIA) LTD (In liq)

WAD9 of 2004

CHARLES LIAW and HERLINA SALIM v SIMON THUANG CHYE LOH, ROBERT ASHMAN, STEPHEN WILLIAM MARSHALL, NEIL HENRY POLLARD  and OSTRICH MEAT & MARKETING COMPANY (AUSTRALIA) LTD (In liq)

WAD10 OF 2004

FRENCH J

6 APRIL 2004

PERTH

THE COURT ORDERS THAT:

1.         The application is listed for further directions on 8 April 2005 at 9.30am.

2.         The parties have liberty to submit any necessary corrections to the proposed orders attached to the reasons for judgment published herewith.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

THE COURT ORDERS THAT:

1.         The application is listed for further directions on 8 April 2005 at 9.30am.

2.         The parties have liberty to submit any necessary corrections to the proposed orders attached to the reasons for judgment published herewith.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT ON MOTIONS

TO STRIKE OUT PLEADINGS, TO DISMISS APPLICATION,

FOR SECURITY FOR COSTS AND ON COSTS OF DECONSOLIDATION ORDERS

Introduction

1                     Two applications are brought by investors in an ostrich farm project operated in 1998 and subsequently by Ostrich Meat & Marketing Company (Australia) Ltd (OMM) now in liquidation.  The application in WAD9 is brought by an Indonesian citizen who lives in Jakarta although he has family living in Australia.  The other application, WAD10 of 2004, is brought by his parents who, it is said, live in this country.

2                     The applicants complain that they were induced to sign agreements with, and pay money to, OMM by reason of misleading or deceptive conduct on the part of OMM and negligent non-disclosure of material facts which also amounted to a breach of fiduciary duty.  They claim damages and equitable compensation under various causes of action which they set up.  Their claim is brought against the company and its four directors.  The proceedings have a long and unhappy history which is referred to in an earlier judgment, Kurniadi v Loh [2005] FCA 49,  and later in these reasons.

3                     Three of the respondents, former directors of the company, seek to strike out substituted statements of claim which have been filed by the applicants in the two proceedings.  The second respondent seeks summary dismissal of the application in WAD10.  The second, third and fourth respondents also seek orders for security for costs.  The applicants seek directions as to the conduct of the trial of the two applications and the mode of taking evidence.

4                     For the reasons which follow I have come to the conclusion that although the substituted statements of claim and their proposed successors, amended substituted statements of claim, have significant difficulties the thrust of the applicants’ case is clear enough.  It is, in my opinion, inappropriate to add to the expense and delay already incurred in these proceedings by striking out the numerous paragraphs of the substituted statement of claim, and its proposed successor, to which the respondents have taken objection.  On the other hand, given the undoubted difficulties with the pleading, I do not think that the respondents should be required to file defences to them.  I propose therefore to order that pleadings be dispensed with and that the respondents be required to file statements of their contentions of fact and law.  The sums of money involved in the alleged investment by the applicants are relatively small and, I suspect, are dwarfed by the legal costs incurred in these proceedings up to date.

5                     I do propose to accede to the applications for security for costs made by the second, third and fourth respondents and will direct that the applicant in WAD9 provide security in the sum of $30,000 in respect of each of the second, third and fourth respondents.  Stay orders will be made in that application and in WAD10 in the event that security is not provided. A motion for summary judgment against the applicants in WAD10 brought by the second respondent is dismissed.  I propose to make orders as to the conduct of the trial which are foreshadowed in these reasons.

Procedural history

6                     The history of these proceedings from their commencement in this Court to their transfer to the Federal Magistrates Court, their consolidation in that Court, their re-transfer to this Court and their subsequent deconsolidation, is set out in the reasons for judgment in Kurniadi.   

7                     Upon the deconsolidation of these and a number of other related proceedings the applicants in each of WAD9 and 10 of 2004 were directed to file and serve a substituted statement of claim on or before 18 February 2005.  Directions were also given requiring the respondents to file any motion for security for costs by the same date.  Any motions to strike out the statement of claim were to be filed and served by 25 February 2005.  Following these directions a number of events occurred:

1.         A substituted statement of claim was filed in each of WAD9 and 10 on 11 February 2005.

2.         Motions to strike out the substituted statement of claim were filed in WAD9 by the second, third and fourth respondents on 24, 25 and 25 February respectively.  A motion to strike out the substituted statement of  claim in W10 was filed by the fourth respondent on 25 February.

3.         On 9 March 2005, a motion was filed by the second respondent seeking, by way of summary judgment, to dismiss the application in WAD10 in its entirety.

4.         Motions for security for costs were filed in WAD9 and WAD10 by the second and fourth respondents and in WAD9 by the third respondent on 15, 18 and 21 February respectively.

8                     The applicants have subsequently filed in each case an amended substituted statement of claim in an endeavour to meet objections to the substituted statement of claim reflected in the strike out motions.  Submissions have also been filed relating to the costs of the deconsolidation proceedings.

The substituted statement of claim

9                     It is convenient first to deal with the substituted statement of claim (SSC) which has been filed in each of these matters.

10                  The SSC in WAD9/2004 pleads causes of action said to support claims for relief against the various respondents by way of damages pursuant to s 82 of the Trade Practices Act 1976 (Cth) (the Act), ss 945  (presumably s 995) and 1005 of the Corporations Law, damages at law and for breach of contract.  Equitable compensation for breach of fiduciary duty is claimed, together with indemnity costs and interest. 

11                  The applicant alleges that OMM, the fifth respondent, is a company incorporated in Western Australia on 31 October 1994 which was made the subject of a winding up order in the Supreme Court of Western Australia on or about 22 January 2002.  The action against OMM is brought pursuant to leave granted by the Supreme Court of Western Australia on 25 June 2003.  It appears that there has been no formal joinder of OMM although it has been treated as a party in the proceedings.  The applicants seek to rectify that defect by moving for its joinder. OMM is said to have no assets from which to pay any dividends in the winding up and/or to pay any creditors including the applicant.  The other four respondents, Messrs Loh, Ashman, Marshall and Pollard are said to have been directors at the material times. 

12                  In pars 4 to 25 of the SSC a number of matters, including the state of global markets for ostrich hides, are pleaded to establish that in 1994 and subsequently OMM, which operated an ostrich farm near Pinjarra, was a failing company in a parlous financial position.  In summary the matters set up are as follows:

1.         OMM had its own stock of ostriches and agisted others for third parties.

2.         Ostriches reach peak laying performance at 7-8 years with an average of 60 eggs per hen per breeding season.  They reproduce for up to 40 years only in exceptional circumstances.  They do not have an excellent feed conversion to meat.  They produce 29 kilograms of saleable meat on average. (SSC 5.3)  At all material times 25% of the eggs of OMM’s ostriches hatched into live chicks.

3.         OMM derived the bulk of its trading income from the sale of ostrich meat to various overseas markets and ostrich hides on the world market.  The production of ostrich hides involves the costs of hatching, rearing, maintaining and caring for the ostriches, slaughtering them and salting, shipping and tanning their hides. (SSC 8)

4.         In order to pay its creditors in the ordinary course of business OMM had to obtain at least $18 per kilogram for ostrich fillets, $13 per kilogram for steaks and $25 per square foot average for hides.  These prices were obtainable prior to mid 1998 but at that time the prices fell to $10.50 per kilogram for fillets and $8.50 per kilogram for steaks.  In addition, at that time, South African farmers had stockpiled at least 200,000 ostrich hides and produced a further 300,000 hides in a total world market for no more than 200,000. (SSC 9-12)

5.         At June 1998, OMM could not sell its hides and the pleaded costs of producing the hides exceeded the amount for which it could sell any meat it produced.  Unless it was able to fetch at least the prices necessary to pay its creditors it would not be able to do so as their claims fell due. (SSC 14)

6.         OMM’s financial statements for July 1997 to June 1998 showed increased accumulated losses to over $2 million, decreased trading revenue to $263,729, a loss of $99,224 and a bank overdraft of $253,575.  The financial years June 1995 to June 1998 showed significant operating losses and negative cash flows.  (SSC 15-17)  Outstanding trade debtors had fallen and amounts due to creditors had increased.  (SSC 18)

7.         OMM set but did not meet sales targets for ostrich meat and hides in the period January to November 1997. (SSC 21)

8.         OMM banked with the National Australia Bank.  It entered into two drawdown facilities with the Bank in 1997, secured by a mortgage debenture over its assets and undertakings.  It drew down $600,000 and $650,000 respectively. A further $600,000 was advanced in June 1997.  It was unable to repay the facilities and no further money was or would be advanced. (SSC 22)

9.         OMM made no hide sales in the calendar year 1997 or the period January to June 1998.  (SSC 23)

10.       From April 1998 until June 1998 OMM had insufficient funds to meet its current liabilities as and when they fell due.  (SSC 24)

11.       OMM’s ostriches produced hides with holes and were of an inferior quality.  It needed an extra 100-300 ostriches to breed out those with hides with quill holes.  It was unable to purchase such birds.  Even had it found a market for ostrich hides it would not have been able to sell them.  Alternatively, it would only have been able to sell them at prices less than those it needed to be viable.  (SSC 25)

13                  The scene of impending financial disaster having been set, the next part of the SSC alleges a plan by OMM to deal with its difficulties by raising working capital through agreements for the purchase, agistment and breeding of ostriches with overseas investors.  The decision to do this is said to have been taken by way of resolution in May or June 1998 ‘... made with the full knowledge and consent of the first to fourth respondents’.   The details of the agreements proposed are set out in SSC 26.1 as follows:

‘(a)      investors would enter into an agreement with OMM to purchase male and female ostriches and at the same time;

(b)       enter into a contract whereby OMM would agist those ostriches and their progeny;

(c)        OMM would guarantee a minimum reproductive rate of the ostriches it sold which if not achieved, OMM would supplement from other stock; and

(d)       OMM would guarantee to buy back the progeny of the male and female ostriches when they reached 12 months of age, at specified rates;

(e)        OMM would guarantee to replace ostrich chicks up a certain age if they died (sic).’

14                  Under the OMM resolution Mr Loh was to take steps he considered necessary to create marketing materials projecting an overall impression to prospective investors that OMM was flourishing, that the investment would be secure and would provide high rates of return, that there was a steady and profitable demand for OMM’s product and that OMM was optimistic about its business prospects. (SSC 26.2)

15                  It is alleged that in July or August 1998, Mr Loh appointed a selling agent in Jakarta, known as ‘Ostricom’, and caused marketing materials to be produced including a promotional video, a brochure, a certificate of registration of OMM and a price list.  Mr Loh is also said to have provided information to the agent from which advertising materials, including a table of investment returns and a newspaper advertisement, were prepared.  The agent also delivered a presentation on the basis of that information.  (SSC 28.1-28.4)  There are set out a number of representations about the proposed investment and about OMM said to have been contained in the brochure, the promotional video, the table of investment returns and the newspaper advertisement. (SSC 29, 30, 31 and 33)

16                  It is alleged that on 4 August 1998, the applicant in WAD9, Mr Salim, read the newspaper advertisement and that on 6 August 1998 he met with the agent which represented that if he entered into the investment with OMM he would obtain the rates of return set out in the newspaper advertisement.  (SSC 34 and 35)  Subsequently on 8 August 1998, Mr Salim is said to have attended a presentation by the agent in Jakarta at which the promotional video was played and various representations made. (SSC 36 and 37)

17                  On 14 August 1998, OMM presented Mr Salim with a proposed agreement for the purchase of three juvenile ostriches for $18,000. (SSC 39) Terms of the agreement are set out including guarantees of minimum breeding production by the two female ostriches in the trio.  There were guarantees as to onward production by female ostriches and the purchase of juveniles by OMM.  These guarantees are said to constitute representations that in the years from 2002 to 2010 OMM would pay Mr Salim a yearly minimum sum increasing from $2,400 in 2002 to $63,000 in 2010. (SSC 40)

18                  Mr Salim executed the agreement and paid OMM $18,000 by way of instalments, the final balance being paid in December 1998.  In entering the agreement he alleges that he relied on ‘some or all of the aforesaid representations’ and that if they had not been made he would not have entered into the agreement or paid any money to OMM. (SSC 41)

19                  In October 1998, Mr Loh took Mr Salim for a view of the farm and allegedly represented that his investment in OMM was the best investment he could make, would be a secure investment and would provide high rates of return.  These representations are said to have been made with the knowledge and consent of all the other directors.  (SSC 42)

20                  The SSC then pleads the decline of the ostrich meat market, OMM’s inability to remedy the breach of its facility arrangements with the Bank, its ongoing monthly costs of $100,000 and the time spent in negotiating additional time beyond normal terms for payment of debts to creditors. (SSC 43) 

21                  In June 1998 all of the matters set out in pars 11 to 25 of the SSC dealing with the state of the market and OMM’s financial position were allegedly known to all of the directors.  (SSC 44)  By November 1998 the depressed state of the market in Australia and OMM’s ongoing difficulties are also said to have been known to the directors. (SSC 45)  It is claimed that the implementation of the ‘resolution’ by Mr Loh was done with the full knowledge and consent of the other directors.  (SSC 46)

22                  The SSC sets up an alleged fiduciary duty owed by the directors to the applicant.  By reason of the matters pleaded in pars 11 to 28 it is said they were all promoters of OMM and as promoters owed Mr Salim a fiduciary duty of the utmost candour  and honesty to ensure that he was provided with information which fairly and accurately set out the business risk of investing in OMM.  In any event, by virtue of the resolution and its implementation, OMM owed the applicant the same fiduciary duty. (SSC 47 and 48)  The failure by the directors to disclose the matters in pars 11 to 25 and 43 concerning the market conditions and the parlous financial state of OMM is said to have been a breach of their fiduciary duty. (SSC 49)  OMM itself is said to have breached its fiduciary duty in that respect and the directors to have been knowingly involved in that breach. (SSC 50)

23                  It is alleged that the directors owed a duty of care to Mr Salim to avoid causing him any economic loss because he was vulnerable to suffering such loss and had no means of obtaining information on which to assess the agreement other than what the directors chose to reveal.  They are said to have breached their duty of care in failing to disclose to Mr Salim the various matters set out in pars 11 to 25 and 43. (SSC 52)

24                  Then it is said that the various pleaded representations in pars 29 to 37, 40 and 42.1 were made in the course of trade and commerce and were misleading and deceptive or likely to mislead and deceive in contravention of s 52 of the Act ‘... in that, for the reasons set out in paragraphs 11 to 25 and 43 above, they were, to the knowledge of the Respondents, untrue’. (SSC 53.2)  In the alternative it is said that OMM had a duty to disclose the matters set out in pars 11 to 25 and 43 and failed to do so.  As a consequence of that failure it is said that OMM’s conduct was misleading and deceptive or likely to mislead and deceive.  But for that failure Mr Salim would not have entered into the agreement nor would he have paid moneys. (SSC 54)  Various of the representations are set up as representations as to future matters, wanting reasonable grounds for making them within the meaning of s 51A of the Act, and thereby misleading or deceptive or likely to mislead or deceive. (SSC 55) 

25                  It is said that the representations set out in pars 29 to 37, 40 and 42.1 conveyed and were calculated by the respondents to convey an overall impression to prospective investors that OMM was flourishing, that the agreement would be a secure investment and would provide high rates of return and that there was steady and profitable demand for OMM’s products.  It was represented that OMM was optimistic about business prospects.  This is said to have been misleading or deceptive or likely to mislead or deceive within the meaning of s 52 and the applicant relies on s 51A of the Act. (SSC 56)  An alternative plea of unconscionable conduct is raised. (SSC 57)  Each of the directors is said to have been accessorially involved in the various contraventions pursuant to s 75B of the Act and to bear personal liability under ss 82 and 87 of the Act.  (SSC 58)

26                  Mr Salim pleads reliance upon the Corporations Law (as it was).  He alleges that OMM contravened s 945 (presumably s 995) of the Corporations Law by engaging in misleading or deceptive conduct or conduct that is likely to mislead or deceive.  This is evidently on the basis that the obtaining of interests in OMM via the agreement amounted to the acquisition of, or a dealing in securities, within the meaning of s 92 of the Corporations Law.   The interest acquired by Mr Salim is said to have been in a ‘managed investment scheme’ as defined by s 9.  Again, the directors are said to have been accessorially liable by reason of s 945 (presumably s 995), read with s 1005 of the Corporations Law. (SSC 59-64)

27                  A claim of breach of contract is raised on the basis that there was no payment to Mr Salim as guaranteed in the agreement. (SSC 63-64)

28                  As part of the implementation of its resolution OMM is said to have entered into about 100 agreements and contracts of the type described in par 26 with Indonesian investors. This, it is alleged, constituted incurring of debts by OMM by reason of which it became insolvent in that it incurred an obligation to pay the various investors the sum of $7,320,600 but did not have the money to do so.  By reason of these matters it is said that the directors had reasonable grounds for suspecting that OMM would become insolvent by incurring the debts under the agreements and thereby they were obliged to compensate the applicant for the loss he had suffered. (SSC 65-69)

Strike out motions in WAD9 of 2004

29                  The second, third and fourth respondents have all filed written submissions in support of their strike out motions.  The second respondent seeks to strike out only certain paragraphs of the SSC.  The third respondent contends that the whole of the SSC should be struck out having regard to numerous defects in the pleading and the failure in some respects to disclose a reasonable cause of action.  The fourth respondent seeks to strike out a large number of particular paragraphs.  The second respondent and the fourth respondent expressly invoke O 11 r 16 of the Federal Court Rules.  The third respondent does not say what it is invoking but it seems to be a combination of O 11 r 16 and O 20. 

30                  Upon a review of the objections raised by the second respondent, which were limited in scope relative to the other respondents, I would have struck out two paragraphs of the SSC.  That is all of the words in par 5.2 after ‘third parties’ and par 41.2 which alleges that the applicant ‘... relied on some or all of the aforesaid representations’.  As is rightly pointed out by the second respondent this fails adequately to identify the representations said to have been relied upon.

31                  The third respondent raises a plethora of objections, some 50 or more, to attack the verbiage of the pleading alleging, inter alia, that in various parts it is vague, unparticularised, incomprehensible, meaningless, prolix, raises false issues, pleads evidence, is confusing and inconsistent.  In common with the second respondent, the third respondent alleges that the failure to particularise knowledge pleaded against the respondents is fatal.  This is not so – see O 12.  The objections taken by the fourth respondent are in similar vein to those taken by the third respondent. 

32                  The SSC in WAD9 is an unsatisfying pleading.  It is oddly arranged and undoubtedly contains some vaguely worded allegations upon which it may be said that false issues can be erected.  In some places it appears to plead evidence.  It is no compliment to the pleader to say that, notwithstanding what is an ill-disciplined and long-winded document, the substance of the applicant’s case is relatively clear. 

33                  The applicant claims to have entered into an agreement with OMM and paid money to that company by reason of misleading or deceptive misrepresentations made to him on behalf of the company.  The company’s directors are said to have been knowingly involved in the making of the representations and therefore to be liable for loss and damage suffered by the applicant as a result and recoverable pursuant to s 82 of the Act. 

34                  A separate cause of action in misleading or deceptive conduct is made under the former Corporations Law based upon the characterisation of OMM’s activities in providing the agreements as undertaking a managed investment scheme.  The question arises whether, if the applicant does not succeed under ss 52 and 82 of the Act, he could possibly succeed under the Corporations Law.  The accessorial liability of the directors seems, on the pleading, to be based on similar facts in both the Trade Practices Act and the Corporations Law pleadings.  The utility of the Corporations cause of action is questionable.  Its tendency to draw in additional and costly questions about the existence of a managed investment scheme is to be regarded with apprehension.  This is particularly so given the relatively small amount of money involved. 

35                  It is useful to recall the observations of Deane and Fitzgerald JJ in Taco Company of Australia v Taco Bell Pty Ltd (1982) 42 ALR 177 (at 205-206):

‘It is, no doubt, ordinarily desirable that a trial court should make all findings appropriate to the determination of each claim where a number of causes of action are properly joined.  It is also plainly desirable that if it is proposed to bring proceedings both for contravention of s 52 of the Act and for passing-off in respect of substantially the same conduct, both claims shall be pursued in the Federal Court which alone has jurisdiction to deal with the claim for contravention of s 52.  On the other hand, we consider that the Federal Court should not, as a matter of general discretion, proceed to decide additional claims where it is pointless so to do.  There are plainly many cases where an associated claim for passing-off provides no basis for wider or more effective relief than the primary claim for contravention of s 52 and where, if the primary claim fails, the associated claim will plainly also fail.  In such cases the court should not be troubled by the associated claim.’

Their Honours’ observations, albeit concerned with passing-off claims linked to Trade Practices Act claims, have wider application.  This concern is not a basis for striking out the cause of action under the Corporations Law but to query its utility and whether professional judgment has been brought to bear on that question.

36                  Causes of action are also raised for breach of fiduciary duty, negligent non-disclosure, unconscionable conduct and breach of contract. I am not satisfied that I can conclude, at the threshold, that the allegation of the existence of a fiduciary duty is not tenable on the pleaded facts.  In this respect the third respondent makes little argument beyond the bald assertion that a duty does not exist on those facts.  In any event, much of the factual basis supporting it is common to the other causes of action particularly negligent non-disclosure and so there may be little to be gained by striking out the fiduciary claim even if a strong case against it can be made as a matter of law. 

37                  I do not consider that the SSC as a whole should be struck out.  The third respondent seeks no via media even though he attacks numerous particular paragraphs.  The fourth respondent on the other hand seeks to strike out a large number of paragraphs in the SSC.

38                  I have a considerable degree of sympathy for the respondents in facing the task of pleading to the SSC and its proposed successor, the amended SSC.  Some parts use language whose meaning and construction is at best elusive. I fear however that taking a scalpel to particular paragraphs will simply inflate the expense and delay involved in a proceeding which should have been heard and determined sometime ago.  It is, in my opinion, necessary to find a way forward in the management of this case that does not involve further undue expense and delay.  I propose therefore to allow the applicant’s pleading to stand.  The amended SSC may be substituted for it.  It will stand as a statement of the applicant’s contentions of fact and law.  However I will dispense with further pleadings.  The respondents will not be required to plead to the amended SSC.  That, I think, is too onerous a task given its shortcomings.  Rather I will require the respondents to file statements of the contentions of fact and law upon which they each rely in answer to the applicant’s case.  This will not require them to address the amended SSC in the way they would be required to if pleading a formal defence.

39                  I propose thereafter, consistently with directions previously given in relation to the proceedings in the Federal Magistrates Court, that the trial of the action be on affidavit and/or by the tender of written statements sworn to or affirmed by witnesses called by the parties.  Thus the applicant will be required to file all his affidavits and/or witness statements to be relied upon first and so to disclose the entirety of his case.  If a proposed witness is uncooperative and will not swear an affidavit or sign a witness statement, then a statement of the substance of the evidence which he or she is expected to give should be filed, even if the witness has to be subpoenaed.  I will allow that where the precise terms of an oral conversation are in issue then the affidavit or witness statement should set out the substance of the conversation in outline so that evidence in chief can be adduced orally and without leave. 

40                  The result is that each of the motions to strike out the SSC or paragraphs thereof will be dismissed.  I will make a separate direction that par 41.2 is struck out with leave to replead in terms set out in the amended SSC.  The costs of each of the motions will be in the cause.  I propose to make consequential directions as foreshadowed in relation to the filing of contentions of fact and law by the respondents and the use of affidavits and witness statements at trial.

Summary judgment motion by second respondent in WAD10 of 2004

41                  The second respondent moves to dismiss the applicants’ claim in WAD10 on the basis of affidavit evidence of the applicant in WAD9, filed in both WAD9 and WAD10.  The applicants in WAD10 are the parents of the applicant in WAD9.  There is evidence from Mr Salim, the applicant in WAD9, that he made the payment to OMM underpinning the agreement made by OMM with his parents.  The proceeds, it is said, were intended to benefit Mr Salim’s nephews and nieces. This is reflected in the proposed amended SSC.  Although the agreement was signed by Mr Salim’s parents it appears all profits and returns were to come to him. 

42                  In the SSC for WAD10 it is pleaded that it was Mr Salim, the applicants’ son, who read the newspaper advertisement, met with Ostricom and listened to the presentation and associated representations.  Then it is said that on or about 2 November 1998, he showed the applicants, his parents, the proposed agreement and conveyed to them the substance of OMM’s representations. (SSC42) According to the pleading, they then executed the agreement and paid $38,000 relying upon the representations conveyed by their son and contained in the agreement. In the proposed amended SSC for WAD10 it is alleged, in par  43, that the applicants executed the agreement in November 1998 and that their son paid OMM the sum of $38,000.  Somewhat confusingly the balance of the pleading alleges that it was the applicants who paid the money.  (SSC 57.5 and 73.2) 

43                  It may be that, having regard to the affidavit evidence referred to by the second respondent, the claim for damages under s 82 of the Act would be difficult if not impossible to sustain.  However that of itself is no answer to the breach of contract claim.  Even if the parents hold their interest in the agreement in trust for their son, they can be appropriate applicants in an action for breach of contract. 

44                  There also remains the question of the characterisation of the payment made by the son and whether there is a legal liability giving rise to arguable loss on the part of the parents, albeit the recovery be held in trust for their son.  The amended SSC does leave the position as between the applicants and their son with respect to the payment made by him in a state of confusion.  This should be clarified by further amendment.  I am not satisfied, however, that this is a case in which I should dismiss the application as a whole by way of summary judgment.  The second respondent’s motion will be dismissed.  The costs of the motion will be reserved.

Motion to strike out substituted statement of claim in WAD10 of 2004

45                  Only the fourth respondent filed a motion to strike out a number of nominated paragraphs of the SSC for WAD10.  I propose to dismiss the motion on the same basis as I dismissed the strike out motions in WAD9.  The respondents will  not be required to plead to the substituted statement of claim nor to the Amended SSC which I will allow to stand in its stead.  I propose to make directions in this case of the kind foreshadowed in WAD9.  The fourth respondent’s motion will be dismissed.  The costs of the motion will be in the cause.

Motions for security for costs

46                  The second, third and fourth respondents have each filed a motion for the security for the costs of the action. 

47                  The history of the matter thus far includes the following events relevant to the grant of security for costs:

1.         On 21 May 2002 Carr J ordered that each of the applicants in WAD8 and WAD9 pay into Court the sum of $20,000 as security for the costs of the first, third and fourth respondents to the completion of discovery and inspection.  The respondents had liberty to apply for further security.  The second respondent was not involved at that time as the second respondent had not been served with any document in the proceedings.  This money was paid and remains in Court.

2.         On 1 April 2003, in the Federal Magistrates Court, McInnis FM ordered that the respondents in the thirteen applications then before him pay $6,000 as security for the costs of the second respondent to cover the costs of interlocutory steps.

3.,        McInnis FM ordered the applicants to pay the sum of $700 by way of costs of the second respondent’s motion for security for costs.

4.         The sum of $6,000 was paid into Court pursuant to the order of McInnis FM.

48                  Mr Forbes, the solicitor for the second respondent, has estimated the cost of defending the proceedings in WAD9 and WAD10 at $107,771 and has supported his estimate with an itemised schedule of costs.  He seeks security of $40,000 in each of WAD9 and WAD10 and in the alternative, $75,000 by way of security for the costs of the application in WAD9 alone. 

49                  The third respondent seeks security for costs in WAD9 in the sum of $80,000 and, alternatively, $20,000 for the third respondent’s costs up to the completion of discovery and inspection.  His motion is supported by an affidavit by Mr Pestell, a partner in the firm of solicitors representing him.  According to Mr Pestell’s estimate the third respondent’s costs of the application up to and including judgment will be $188,246.  The estimate is supported by an itemised schedule.

50                  The fourth respondent seeks security for costs in the sum of $70,000 from the applicants in WAD9 and WAD10 and, alternatively from the applicant in WAD9. 

51                  It appears from the affidavit of Karen Garrett of 15 February 2005 that Mr Iwan Salim, the applicant in WAD9 of 2004, was and probably still is the holder of a resident visa.  It also appears, however, from his own affidavit sworn 23 March 2005 that he lives at an address in Jakarta in Indonesia.  His sister, Helen Chandra in an affidavit sworn 11 March 2005, says that she and the applicant and their sister, Sophie Liaw, jointly own a property at 61 Eastern Arterial Road, St Ives.  It does not appear that the property is encumbered.  There is valuation evidence from a real estate agent, Phillip Harvey, that the property would sell for about $680,000.  It must be observed, however, that the joint ownership of such a property is of little reassurance to the respondents in the event that they are seeking to enforce costs orders against one of the co-owners. 

52                  The position with respect to Mr Salim’s parents, who are the applicants in WAD10,  is not satisfactorily explained on the material before me.  There is second hand evidence that the father, Charles Liaw, is an Australian citizen and that the mother, Herlina Salim, is a permanent resident.  There is secondhand evidence from the applicants’ solicitor, Ms Garrett, that Mr Salim told her his parents have lived in St Ives since 1997.  There is secondhand evidence also of Mr Salim’s limited assets and limited disposable income.

53                  Mr Salim appears to be funding the litigation of both himself and his parents.  He is living outside the jurisdiction.  He has provided less than satisfactory evidence of his asset position.  I consider that I should make the orders for security for costs to be satisfied by him in relation to WAD9 of 2004.  There will be a stay order contingent upon the provision of that security within a month.  Having regard to the close connection between the proceedings in WAD9 and WAD10 and Mr Salim’s funding of the latter, I will also direct a stay order in WAD10 in the event that the security required in WAD9 is not provided.  I have regard to the fact that the proceedings are likely to involve substantially common evidence and that I intend that they will be heard together.  I have regard to the fact also that it appears that Mr Salim was the effective investor in each case. 

54                  The amounts in dispute in these proceedings are not great.  But the applicants have shown a talent, with their pleadings, for making mountains out of molehills and for presenting what should be a relatively simple case as one which is complex, both factually and legally.  To some extent I have tried to address the difficulties that their pleading has generated by simplifying the interlocutory processes and dispensing with pleadings.  Nevertheless, it is appropriate in my opinion that they assume some of the risks that the legal and factual complexity of the case, as they mount it, imposes upon the respondents.  In so doing I recognise that an order for security provides a partial indemnity only.  Moreover, in assessing the respondents’ estimates of costs, I consider that they do not have to operate in all respects as though they are running entirely independent cases.  There is room for cooperation and job sharing particularly in the areas of discovery and inspection.  So while accepting that the figures estimated for each of the respondents are bona fide estimates, I do not consider that they give adequate weight to the possibility of economies that may be achieved by cooperative approach. 

55                  In my opinion the appropriate order in this case is that the applicant in WAD9 of 2004 provide security for costs in the sum of $30,000 for each of the second, third and fourth respondents up to and including the trial of the action.  That is a total of $90,000.

56                  On each of the motions for security for costs therefore the orders I propose in WAD9 of 2004 are:

1.         The applicant is to provide security for the costs of the action up to and including trial in the amount of $30,000 for each of the second, third and fourth respondents, such security to be provided by way of bank guarantee in a form approved by the Registrar or as otherwise agreed on or before 6 May 2005.

2.         In the event that security is not provided as directed the proceedings are stayed from 7 May 2005 until further order.

On the motions for security for costs in WAD10 of 2004 I propose to order that the proceedings be stayed from on and after 7 May 2005 until further order in the event that the applicant in WAD9 of 2004 has not provided security for the costs as ordered.

57                  So far as the sum of $6,000 paid into court by all of the applicants in the consolidated proceedings is concerned, that sum can remain in Court pending the resolution of those proceedings or further order.  I will, however, in accordance with the second respondent’s motion, direct that the sum of $700 be paid out of Court to the second respondent from that sum.  The sum of $20,000 paid into Court in WAD8 and WAD10 pursuant to the order of Carr J stands as security for costs in those matters until further order.

Costs of the deconsolidation motion

58                  On 4 February 2005 I ordered in each of WAD9 and WAD10 that:

‘The costs of the motion for deconsolidation and any costs thrown away by reason of the deconsolidation order will be the respondents’ costs in the proceedings in WAD9 and WAD10 of 2004.’

I gave liberty to the parties to apply to vary that order.  The applicants in WAD9 and WAD10 seek an order for the costs of that motion.  They say the respondents should have consented to the motions.  They say they proposed deconsolidation of the actions in March, April and May 2004 and again in November 2004. 

59                  Deconsolidation suits the applicants in WAD9 and WAD10 because of the events that have occurred in relation to the cessation of their legal representation of other group members.  That is not a circumstance to be laid at the door of the respondents.  It is true they opposed deconsolidation and were unsuccessful.  In my opinion, however, deconsolidation involved case management judgments in the interests not just of the parties, but the efficient use of the Court’s resources.  On reflection however, I consider that the costs of the deconsolidation motion should not be the respondents at all.  I will therefore vary the orders made in February 2005 by directing that each party bear its own costs of the deconsolidation motions but that any costs thrown away by reason of the deconsolidation order will be the respondents’ costs in the proceedings.

The applicant’s motion for directions

60                  The applicant has filed in WAD9 of 2004 a motion for directions.  To some extent I have already foreshadowed the directions I intend to make and pursuant to that motion I propose to make the following orders which I will make in both WAD9 and WAD10:

1.         The Ostrich Meat & Marketing Company (Australia) Limited (In Liquidation) be joined as fifth respondent.

2.         The applications WAD9 and WAD10 of 2004 be heard concurrently with evidence in one being evidence in the other.

3.         Pleadings be dispensed with.

4.         The applicant’s amended substituted statement of claim is to stand as a statement of its contentions of fact and law.

5.         The respondents are each to file and serve contentions of fact and law.

6.         Evidence at the trial of the application is to be by way of affidavit and alternatively witness statements to be adopted by the witness as part of his or her evidence-in-chief.

61                  I will hear from the parties as to further directions for the timetabling of the filing of statements of facts and contention and the filing of affidavits and witness statements.

Conclusion

62                  The orders I propose to make in response to the various motions are attached to these reasons for judgment.  I will relist the matter for directions on 8 April 2005 at 9.30am.  The parties may then draw my attention to any corrections necessary to the drafting of the orders.  Further timetabling directions will also be made.

Associate:

Dated:              6 April 2005

PROPOSED ORDERS

THE COURT ORDERS THAT:

A.        On each of the Second, Third and Fourth Respondents’ motions to strike out the substituted statement of claim or parts thereof:

1.         The motion is dismissed.

2.         The costs of the motion is in the cause.

B.        On each of the Second, Third and Fourth Respondents’ motions for security for costs:

1.         The applicant is to provide security for the costs of the action up to and including trial in the amount of $30,000 for each of the second, third and fourth respondents, such security to be provided by way of bank guarantee in a form approved by the Registrar or as otherwise agreed on or before 6 May 2005.

2.         In the event that security is not provided as directed the proceedings are stayed from 7 May 2005 until further order.

3.         The costs of the motions are reserved.

4.         Out of the sum of $6,000 paid into Court pursuant to the order of McInnis FM, the sum of $700 will be paid out to the second respondent by way of its costs of the motion for security before McInnis FM.

5.         The sum of $5,300 paid into Court by all applicants in the previously consolidated proceedings shall remain in Court pending the resolution of all proceedings or further order.

C.        The orders made on 4 February 2005 as to the costs of the deconsolidation motion be varied so that each party bears its own costs of the motion.  The order that costs thrown away are the respondents’ costs in the proceedings is not varied.

D.        On the Applicant’s motion for directions:

1.         The Ostrich Meat & Marketing Company (Australia) Ltd (In liquidation) be joined as fifth respondent.

2.         The applications WAD9 and WAD10 of 2004 be heard concurrently with evidence in one being evidence in the other.

3.         Pleadings be dispensed with.

4.         The applicants’ amended substituted statement of claim is to stand as a statement of its contentions of fact and law.

5.         The respondents are each to file and serve contentions of fact and law by times to be directed.

6.         Evidence at the trial of the application is to be by way of affidavit and alternatively witness statements to be adopted by the witness as part of his or her evidence-in-chief.

7.         Liberty to apply for further directions as to timetabling.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

PROPOSED ORDERS

THE COURT ORDERS THAT:

A.        On the Second Respondents’ motion for summary judgment:

1.         The motion is dismissed.

2.         The costs of the motion are reserved.

B.        On the Fourth Respondent’s motion to strike out parts of the substituted statement of claim:

1.         The motion is dismissed.

2.         The costs of the motion are in the cause.

C.        On the Second and Fourth Respondents’ motions for security for costs:

1.         The proceedings will be stayed on and from 7 May 2005 until further order in the event that, by that date, the applicant in WAD9 of 2004 has failed to provide the security ordered in those proceedings.

D.        The order made on 4 February 2005 as to the costs of the deconsolidation motion be varied so that each party bears its own costs of the motion.  The order that costs thrown away are the respondents’ costs in the proceedings is not varied.

E.         On the Applicants’ motion for directions:

1.         The Ostrich Meat & Marketing Company (Australia) Ltd (In liquidation) be joined as fifth respondent.

2.         The applications WAD9 and WAD10 of 2004 be heard concurrently with evidence in one being evidence in the other.

3.         Pleadings be dispensed with.

4.         The applicants’ amended substituted statement of claim is to stand as a statement of its contentions of fact and law.

5.         The respondents are each to file and serve contentions of fact and law by times to be directed.

6.         Evidence at the trial of the application is to be by way of affidavit and alternatively witness statements to be adopted by the witness as part of his or her evidence-in-chief.

7.         Liberty to apply for further directions as to timetabling.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.