FEDERAL COURT OF AUSTRALIA

Australian Securities & Investments Commission v Axis International Management Pty Ltd [2009] FCA 250

PRACTICE AND PROCEDURE – motion for separate trial – FCR O 6 r 6 – unique and limited issues compared to cases against other defendants – no or insignificant overlap in evidence – delay – likely injustice to director of applicant company on the motion due to adverse media coverage.      

Corporations Act 2001 (Cth), s 77(1), s 707(3), (4), Part 6D.2

Federal Court of Australia Act 1976 (Cth), s 21

Judiciary Act 1903 (Cth), s 39B

Australian Securities & Investment Commission v Somerville [2008] NSWSC 788 cited

Bishop v Bridgelands Securities (1990) 25 FCR 311 cited

Carter v Commissioner of Taxation (2001) 109 FCR 215 cited

Dean-Willcocks v Air Transit International Pty Ltd (2002) 55 NSWLR 64 cited

Dean-Willcocks v Commissioner of Taxation 2003 45 ACSR 298 cited

Henschel v Brittany Crepe Company Pty Ltd [1981] Qd R 173cited

Hinze v Zed [1926] SASR 77 cited

Jendas Pty Ltd v Jolly [1997] 2 VR 106 cited

Knight v Beyond Properties Pty Ltd (No 2) [2006] FCA 192 cited

Main-Road Property Group Pty Ltd v Pelligra & Sons Pty Ltd [2007] VSC 43 cited

Mann v Board of Health (ACT) (1996) 67 FCR 383 cited

Meadow Gem Pty Ltd v ANZ Executors and Trustees (unreported, Supreme Court of Victoria, 8 May 1995) cited

National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Limited [1996] FCA 1228cited

Newman v Hold Pty Ltd [2001] VSC 282 cited

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v AXIS INTERNATIONAL MANAGEMENT PTY LTD, FIREPOWER INVESTMENTS PTY LIMITED, OWSTON NOMINEES NO 2 PTY LTD, SATTVIC PTY LTD, SEASWAN HOLDINGS PTY LTD, QUENTIN PHILLIP O'DOHERTY WARD, TIMOTHY FRANCIS JOHNSTON and GREEN TRITON LIMITED

WAD 157 of 2008

GILMOUR J

23 MARCH 2009

PERTH

THE COURT ORDERS THAT:

1.                  The trial of this action as between the applicant and the fourth respondent proceed separately from the trial of this action as between the applicant and all other respondents.

2.                  The applicant pay the fourth respondent’s costs of the application.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

Introduction

1                     Firepower Holdings Group Ltd (Firepower BVI) is part of the Firepower group of companies which was involved in fuel technology.  It is well publicised that the group including Firepower BVI, in the second half of 2008, failed in dramatic circumstances.  Shareholders are thought to have lost up to $100 million from the group’s collapse.

2                     The fourth respondent, Sattvic Pty Ltd, seeks a separate trial as between ASIC and itself from the trial as between the ASIC and all other respondents.

3                     Where any joinder of parties or of causes of action may complicate or delay trial of the proceedings or is otherwise inconvenient, the Court has power under Order 6 rule 6 of the Federal Court Rules 1979 (Cth) to order a separate trial or make such other order as the Court thinks fit.

The Pleaded Actions

4                     ASIC’s case against Sattvic is that, by an agent, it sent to several investors application forms for the transfer of shares to each of them from an existing shareholder in Firepower BVI.  These offers were accepted and in due course completed by the relevant transfer of the shares in question.  The transfers were entered into the register of Firepower BVI and certificates for those shares were issued to the investors.  

5                     It is alleged, in relation to the several offers, that no relevant statutory exemptions applied and that accordingly each of the offers needed disclosure to investors under Part 6D.2 of the Corporations Act 2001 (Cth) (“the Act”).  No prospectus, profile statement or author information statement has ever been lodged with ASIC in respect of any of the offers and at no time has ASIC ever approved the use of a profile statement in relation to the issue of shares in Firepower BVI.

6                     It is pleaded that, in making the offers Sattvic, on each occasion, contravened s 727 of the Act by making an offer of securities that needed disclosure to investors under Part 6D.2 where no Disclosure Document has been lodged with ASIC. 

7                     The cases against the other corporate respondents are essentially the same in substance except that they involve different investors.  There is no relationship between the several corporate defendants.  Contravention declarations as well as disclosure and advertising orders are sought in respect of each corporate defendant. 

8                     Additional relief is sought as against the sixth and seventh defendants, Ward and Johnston, that they be disqualified from managing corporations for such period as the Court might consider appropriate. 

The Relevant Principles

9                     The relevant principles are not controversial.  The basic principle, which ought to guide the exercise of discretion, is that “the Court should take whatever course seems to be most conducive to a just resolution of the disputes between the parties, but having regard to the desirability of limiting, so far as practicable, the costs and delay of the litigation”: Bishop v Bridgelands Securities (1990) 25 FCR 311 at 314.  This case involved an application for joinder of additional applicants, which raises similar considerations to the present one.

10                  If inconvenience is alleged, it must be shown that there are factors which make it inconvenient for there to be a joint trial, rather than that a separate trial is more convenient: Mann v Board of Health (ACT) (1996) 67 FCR 383 at 399F.    

11                  Disadvantages to a defendant seeking a separate trial, including the possibility of unfairness, must be weighed against identified advantages to ASIC and to the defendants as a whole and the efficient use of the court’s resources having regard to the commonality of issues raised by each claim: Dean-Willcocks v Air Transit International Pty Ltd (2002) 55 NSWLR 64 at [34].  The court should be concerned to determine what is the most efficient use of the resources of the parties and also of the court: Carter v Commissioner of Taxation (2001) 109 FCR 215 at [23].

12                  Factors which have been held to weigh in favour of exercising the discretion to order separate trials include:

(a)        the issues concerning the party seeking the separate trial are distinct and discrete: Bishop v Bridgeland Securities at 314;

(b)        a joint trial will involve the respondent in the expense of being present at the trial of questions with which they are not concerned and it would be unfair for the respondent to be compelled to participate in a large and costly proceeding where it has only marginal involvement: Hinze v Zed [1926] SASR 77 at 84; Knight v Beyond Properties  Pty Ltd (No 2) [2006] FCA 192 at [30] and Newman v Hold Pty Ltd [2001] VSC 282 at [17].

13                  Factors which have been held to militate against making such an order include:

(a)        the potential overlap of evidence and argument, including the need for the same witnesses to be called at both trials: National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Limited [1996] FCA 1228 at [17]; Dean-Willcocks v Commissioner of Taxation 2003 45 ACSR 298 at [18];

(b)        the interrelationship between issues which are not capable of being resolved independently of each other: Mann v Board of Health (ACT) at 400F;

(c)        the potential disqualification of the judge that hears the first trial, if adverse findings are made as to the creditabilityof witnesses: National Mutual Property Services (Australia) Pty Ltd v Citbank Savings Limited at [16]; Dean-Willcocks v Commissioner of Taxation at [18]; and

(d)        the undesirability of inconsistent findings as to the same transactions: Henschel v Brittany Crepe Company Pty Ltd [1981] Qd R 173 at 175-176.

14                  ASIC submits that the following factors are also relevant:

(a)        the state of progression of the proceeding: Knight v Beyond Properties Pty Ltd (No 2) at [25].

(b)        the degree to which cost and delay will be minimised by a single trial or by separate trials:  Bishop v Bridgelands Securities Ltd at 314;

(c)        the efficient use of the resources of the parties and the court: Carter v Commissioner of Taxation at [23]; Dean-Willcocks v Air Transit International Pty Ltd at [34];

(d)        that it is preferable from a public policy perspective to avoid a multiplicity of hearings: Main-Road Property Group Pty Ltd v Pelligra & Sons Pty Ltd [2007] VSC 43 at [21];

(e)        any relevant public interest in the proceeding: Dean-Willcocks v Air Transit International Pty Ltd at [35]; and

(f)        the degree of similarity in the transactions alleged in the proceedings – this may be a more weighty consideration than the somewhat technical point that the transactions do not form a series: Australian Securities & Investment Commission v Somerville [2008] NSWSC 788 at [42].

Sattvic’s Submissions

Limited and unique issues

15                  Sattvic submits that the issues to be tried as between it and ASIC are unique.  They are:

•     whether or not the shares issued to Sattvic issued on 2 August 2005 (as alleged by the applicant) or on 2 June 2005 (as alleged by Sattvic).  The issue does not arise as between ASIC and any other respondent as ASIC alleges, in respect to those respondents, that the shares to them issued on 2 June.

•     whether the facts that are unique and confined to the 3 transactions involving Sattvic prior to 2 June 2006 (introduced into the proceedings by the applicant’s recent amendment to its Statement of Claim) mean that, contrary to the applicant’s case, the sending of the “Application for Share Transfer From the Existing Shareholder Firepower Holdings Group Ltd” to the 3 purchasers did not constitute an offer within the meaning of s 727(1) of the Act.

16                  Moreover, Sattvic submits that the pleadings as between ASIC and the other respondents raise, amongst others, the following issues which, either because they are not pleaded as against Sattvic, or alternatively as a result of admissions made by Sattvic, are not in issue as between ASIC and Sattvic:

•          whether the other respondents by giving a form headed “Application for Share Transfer from an Existing Shareholder Firepower Holdings Group Ltd” to various Investors as pleaded in the Amended Statement of Claim constituted an offer for sale of shares made in Australia;

•           whether a reasonable person in the position of the sixth respondent, as a director of the first respondent, would have undertaken the actions as pleaded in paragraph 231 of the Amended Statement of Claim (see para 113 of the Defence of the first and sixth respondent);

•           whether the offer of shares in Firepower BVI to the third respondent was made without disclosure to investors under Part 6D.2 of the Corporations Act 2001 (Cth) (see para 4 of the Defence of the third respondent);

•           whether the shares issued to the third respondent were issued for the purpose of that entity selling or transferring the shares or alternatively acquired for that purpose (see para 6 of the Defence of the third respondent);

•           whether the first respondent and sixth respondent had authority to act on behalf of the third respondent, and did so act, by making the offers alleged in the Amended Statement of Claim to the individuals and entities set out therein to purchase shares in Firepower BVI (see para’s 30-34; 59-74 of Defence of first and sixth respondents and paras 8-19 of Defence of third respondent);

•           whether D’Emden had authority to act on behalf of the third and fifth respondents, and did so act, by making the offers alleged in the Amended Statement of Claim to the individuals and entities set out therein to purchase shares in Firepower BVI (see para’s 26-28 of the Defence of the third respondent and para’s 191-194 of the Defence of the fifth respondent);

•           whether any of the offers allegedly made by the other respondents were made under a dividend reinvestment plan or bonus share plan (see para 29 of the Defence of the third respondent);

•           whether any shares in Firepower BVI have ever been quoted on any financial market operated by any of Australia Pacific Exchange Limited, Australian Stock Exchange Limited, Bendigo Stock Exchange Limited or Stock Exchange of Newcastle Limited (see para 30 of the third respondent);

•           whether a reasonable person in Johnston’s position as a director or officer of Green Triton or alternatively of Firepower Investments would have taken the steps set out in paragraph 234 of the Amended Statement of Claim and in failing to take such steps failed to act reasonably (refer to para 33 of the Defence of the third respondent);

•           whether there is any matter for the purposes of s 1337B of the Act, s 21 of the Federal Court of Australia Act 1976 (Cth) and s 39B of the Judiciary Act 1903 (Cth) (see para 36 of the Defence of the third respondent);

•           whether the shares issued to the fifth respondent were issued for the purpose of that entity selling or transferring the shares or alternatively acquired for that purpose (see para 49 of the Defence of the fifth respondent);

•           whether at all material times the fifth respondent believed that an information statement had been prepared and all relevant regulatory requirements for the sale of shares by or on behalf of the fifth respondent had been complied with (see para 221 of the Defence of the fifth respondent).

Length of Trial

17                  Having regard to the issues in dispute as between ASIC and Sattvic, and the evidence likely to be adduced, it is the estimate of counsel for Sattvic that, if tried separately, the trial of the issues as between ASIC and Sattvic probably will take no more than a day.  This estimate was not disputed by senior counsel for ASIC. 

18                  Moreover, again by reason of the limited issues as between ASIC and Sattvic, upon the giving of discovery, in respect of which there is now no dispute as between these parties, and subject to the filing of the parties evidence, the matter would be ready for trial. 

19                  Sattvic submits that if the trial of the action as between it and ASIC is not separated from the trial of the issues as between ASIC and the other respondents, it seems likely that the matter will not be entered for trial for some considerable time.  By reason of the number and nature of the issues as between ASIC and each of those respondents, and given the number of respondents involved and the fact that they are separately represented, the length of the trial would be measured in weeks, not days.  Again, this estimate was not contested and in any event, seems to me to be reasonable. 

20                  Sattvic also submits that:

•      the joinder of the parties and the causes of action as between them will delay the trial of the action in which it is a respondent;

•      it will be not only inconvenienced, but oppressed as a result of the additional length of trial it would be subjected to as a consequence of the joinder of parties by reason of the significantly greater legal costs which it will incur, as well as the significantly greater time that its instructing officer Mr Stein – himself a legal practitioner – will have to spend in court to provide instructions.

•      Mr Stein is a relatively high profile lawyer, who for many years practised in Western Australia but now practices in New South Wales.  He has suffered adverse press coverage in relation to the allegations involving him, as a director of Sattvic, on a number of occasions since July 2008 which has, and will continue to affect his professional and personal reputation.  This submission is supported by an affidavit sworn by Mr Stein on 5 February 2009.

The Plaintiff’s Submissions

21                  ASIC accepts that the factors identified by Sattvic are relevant, although it submits that the concerns, as expressed, are overstated.  It submits that making such an order now would be premature and the factors relied on by Sattvic are not, in any event, a sufficient basis for the order sought.

The application is premature

22                  ASIC submits that proceedings are at an early stage in that: 

(a)        The plaintiff's amended statement of claim remains to be supplemented by various particulars.

(b)        Most of the defences (including Sattvic’s) do not set out detailed substantive responses to the allegations in the statement of claim, and ASIC may yet apply for orders requiring responsive defences.

(c)        ASIC has not filed a reply.

(d)        Discovery has not been completed, and it is possible that a number of parties will seek to amend their pleadings after discovery.

(e)        ASIC has not yet filed all the affidavits on which it will rely at trial and, with the exception of one affidavit from Sattvic, the defendants have filed no such affidavits.

(f)        There has not yet been any mediation, which could and should narrow or otherwise change the issues in dispute.

(g)        The third defendant has filed an application to strike out the proceeding against it which, if successful, will reduce the number of parties. 

23                  I do not accept this submission.  It transpires that particulars have now been supplied and discovery between these parties has been given.  The defence of Sattvic is not in the nature of a set of bare denials.  Positive allegations are variously pleaded.  It is a matter for the plaintiff, should it wish to do so, to file a reply.  Such is the position also in respect to the plaintiff’s affidavits.  Sattvic has filed affidavits by Mr Leslie Stein and Mr Kim Stokeld.  A mediation can still take place between ASIC and Sattvic if a separation order is made.  Should the third defendant’s motion in due course succeed then, no doubt, subject to any appeal that would, in due course, spell the end of the action against Sattvic.

24                  ASIC further submits that:

(a)        The live issues of fact and law in the proceedings may look very different after these steps have been completed.  For example, ASIC may have settled with Sattvic, or with some or all of the other defendants.  Clearly this could negate the need to order a separate trial.  Discovery and particulars could prompt further admissions in the defences or in a reply, thus narrowing the issues in dispute.  So it is impossible at this stage of the proceeding to know exactly what shape the trial will take, and it cannot at this stage be said that a joint trial would unfairly prejudice Sattvic.

(b)        Deferring determination of Sattvic’s application for a separate trial will not occasion much, if any, extra cost and delay for Sattvic.  The management of interlocutory steps on a joint basis should not create extra cost for Sattvic.  Sattvic’s implicit assumption that an order for a separate trial will result in the fast-tracking of its trial is unfounded.  It might instead find that its trial is deferred until after the other trial or trials.  The success of its application may encourage other defendants to make the same application, resulting in a large number of trials.  No basis appears from Sattvic’s submissions or evidence for its assumed priority in such an eventuality.

(c)        ASIC therefore submits that the appropriate course is to defer consideration of splitting the proceeding until after the pleadings are closed, interlocutory steps are finalised and mediation has occurred, so as to enable the proceeding to be cohesively managed, at least until it has progressed to the point where an informed assessment can be made of the likely length and complexity of the trial. 

25                  It is said by ASIC that on this approach the question of separate trials could be reviewed at the time that the proceeding is listed for trial: National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (No 2) (Unreported, Federal Court of Australia, 9 December 1996) at p 8. 

26                  I reject this submission.  There is no reason, in my opinion, to adjourn this application on the basis of hypothetical and speculative considerations.

Case Management

27                  ASIC then submits that when the proceeding reaches the stage that an informed assessment can be made of whether any defendants would be prejudiced by a joint trial, other measures may be sufficient to avoid that prejudice.  For example, ASIC says it has become commonplace in large and complex proceedings for trials to be staged in such a manner as to make it unnecessary for all parties to attend at all stages of the trial: Australian Securities & Investment Commission v Somerville [2008] NSWSC 788 at [48]–[50], [57]; Dean-Willcocks v Air Transit International Pty Ltd at [70]; Main-Road Property Group Pty Ltd v Pelligra & Sons Pty Ltd at [25]; Jendas Pty Ltd v Jolly [1997] 2 VR 106 at 107.  In Australian Securities & Investment Commission v Somerville, Austin J observed that ASIC could, with the Court’s encouragement, conduct its case in such a way that the days upon which the eighth defendant in that matter would need to be represented in court would be limited. 

Cost, delay and the efficient use of the resources of the parties and the Court

28                  ASIC submits that it is evident that a separate trial of the plaintiff's claims as against Sattvic will place an additional burden on ASIC and the Court.  It says that the overall length and cost of the proceeding will be greater if it is resolved by way of two (or more) trials rather than by one.  I am not persuaded by this assertion.  It was not supported by any analysis or evaluation of length and cost. 

29                  ASIC submits that if Sattvic’s application succeeds, other defendants may be motivated to make similar applications on the same basis, leading to a multiplicity of trials.  The Court, it says, should avoid a course that will encourage such difficulties to arise in the management of a matter that involves allegations of forty-eight contraventions of the law against eight defendants.  This again, is speculative and in any event is, I think, an unlikely scenario.  Sattvic foreshadowed at an earlier directions hearing that it would bring this motion.  The other defendants were then represented.  None of them has followed the same course nor foreshadowed that they may or will do so.

Public Interest

30                  ASIC submits that it is in the public interest for a regulatory authority such as ASIC to be able to seek public relief in the most expeditious and cost effective way possible: by analogy, Dean-Willcocks v Air Transit International Pty Ltd at 74, where Austin J considered the public interest in a liquidator being able to recover unfair preferences expeditiously to be relevant.  As I have said, I am not persuaded that a joint trial involving Sattvic is necessarily the most expeditious and cost effective way of disposing of this litigation.  In any event, any possible public interest must be balanced against the legitimate private interests of Sattvic.

Common Questions and Similar Issues

31                  ASIC submits that there are similarities between the way the share application form was used in the course of three of the offers alleged against Sattvic (at paras 212A to 212O of the plaintiff's amended statement of claim) and the way those forms were used in respect of certain offers alleged to have been made by other defendants (at paras 84-89, 160-164, 173-177 and 184-194 of the statement of claim).  It then submits, without specificity, that much of the evidence and submissions on these issues are likely to be the same or substantially similar in respect of all defendants.  I have considered the pleadings.  In the end, as I have identified above, the issues for trial between ASIC and Sattvic are very limited.  There is little or no dispute about factual matters which are substantially similar in the actions against the other defendants. 

32                  In addition, ASIC submits that common questions of statutory interpretation affecting important provisions of the Corporations Act 2001 (Cth) are likely to arise in respect of all defendants, in particular s 707(3) and (4).  It says that the purpose test in s 707(4) is relied on against all defendants and there will be common questions concerning the application of that test affecting all defendants.  However, there is no live issue as to this between Sattvic and ASIC as the contentions of ASIC in this respect are admitted.  Accordingly, no question of inconsistent judgments on this question arises. 

33                  In support of its contention that the evidence concerning the claims against it will be unique, Sattvic has filed an affidavit from one of the two persons it has identified as likely witnesses it will call at trial.  As to this ASIC submits that it is necessary to bear in mind that the evidence when called may reveal overlap and connection not presently capable of being detected: Meadow Gem Pty Ltd v ANZ Executors and Trustees (unreported, Supreme Court of Victoria, 8 May 1995) at 14.  For example, it says, evidence from the seventh defendant, Mr Johnston, may bear on the question of the date of issue of shares to Sattvic which is raised in paragraph 2 of Sattvic's defence.  As before these submissions are speculative.  If there were indeed the real likelihood of overlap it would by now be evident.  In any event, even if there were some limited overlap of the kind described I do not regard that, of itself, as a basis for declining the order sought.

34                  The various factors which led Austin J of the Supreme Court of New South Wales to recently allow a joinder of defendants by ASIC in Australian Securities & Investment Commission v Somerville are absent in the matter. 

35                  There, Austin J, granted ASIC leave to join ten defendants in the one action.  The first defendant was a Mr Somerville.  The second defendant was the incorporated legal practice of which Mr Somerville had become a legal practitioner director.  ASIC had contended that Mr Somerville had provided legal advice as a solicitor to each of the eight director defendants to the effect that they should sell the business or assets of a certain company to another purchaser company which each would control.  The liability of Mr Somerville and his incorporated legal practice would only have arisen if contraventions by one or more of the other defendants were proved.  It was the common participation of Mr Somerville as legal adviser that linked the transactions.  Accordingly and most importantly, the cases against each of the eight director defendants were components of ASIC’s case against Mr Somerville and his incorporated law firm for involvement in the contraventions by each director.  It was, as his Honour found, an important part of ASIC’s evidentiary case against Mr Somerville and his incorporated legal practice to show that, in respect of the eight transactions, there was a pattern and similarity devised by Mr Somerville [37].  Accordingly, ASIC and Mr Somerville were common parties to all claims.  There was considered to be a likely saving of costs to ASIC and Mr Somerville by one proceeding, constituted with all ten defendants, going to trial.  There was likely to have been a very substantial repetition of evidence should there have been a separation of the case against one of the defendants as Mr Somerville would have had to give evidence in the trial of that case as well as the case against the balance of the defendants.  It was, accordingly, concluded that as a primary factor in refusing a separation order that the benefits to ASIC and Mr Somerville of a single proceeding in which the evidence of his involvement in the eight transactions was received once and for all was considered as of great significance. 

36                  In this case, however, the common thread passing through the cases against each of the corporate defendants and indeed the personal defendants is that each of these cases concerns transactions involving Firepower BVI shares.  There is, otherwise, no relationship between the corporate defendants nor any between Sattvic and either Mr Ward or Mr Johnston, the sixth and seventh defendants respectively.

37                  I am satisfied that it would be inconvenient to Mr Stein, particularly professionally, for the case against him to be tried together with the cases against the other defendants.  More importantly, given the already adverse effect of these proceedings upon his reputation I think that the inevitable delay of a trial as against his company, Sattvic, would of itself render an injustice to him.  I would expect such delay to be considerable in the circumstances.

38                  In my opinion, for these reasons, the motion should be granted with costs.  I will invite the parties to bring in a minute of order reflecting these reasons.

Associate:

Dated:         23 March 2009