FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited (Receivers and Managers Appointed) (in liquidation) (Controllers Appointed) [2012] FCA 1051

THE COURT ORDERS THAT:

1.    The application for transfer of the proceeding to the Supreme Court of Victoria is dismissed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

REASONS FOR JUDGMENT

1    The plaintiff, the Australian Securities and Investments Commission (“ASIC”) has brought a proceeding in this Court for breaches of managed investment scheme provisions of the Corporations Act 2001 (Cth) (“the Act”), against the first defendant, Australian Property Custodian Holdings Limited (Receivers and Managers Appointed) (In Liquidation) (Controllers Appointed) (“APCHL”), and against five directors of that company ("the Director Defendants"). ASIC seeks:

(a)    declarations of contravention;

(b)    pecuniary penalties; and

(c)    orders prohibiting the Director Defendants from the management of companies.

2    The second defendant, the former director Mr William Lewski, applies to transfer the proceeding to the Supreme Court of Victoria pursuant to my discretion to do so found in either s 1337H of the Act or s 5 of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) (“CVA”). The application is supported by each of the other Director Defendants and by APCHL. ASIC opposes transfer.

3    Underpinning the application to transfer is the fact that when ASIC commenced its proceeding APCHL had already commenced proceedings seeking damages in the Supreme Court of Victoria against the Director Defendants and against seven other defendants (“the Compensation Proceeding”). It is common ground that there is a substantial overlap on the facts relied on in the Compensation Proceeding with those relied on by ASIC.

4    The defendants contend that the Penalty Proceeding should be transferred as, having regard to the interests of justice, it is more appropriate that it be heard in the Supreme Court so as:

(a)    to be heard concurrently with the Compensation Proceeding;

(b)    alternatively, to be heard by the same judge that hears the Compensation Proceeding; or

(c)    at least to be case managed together with the Compensation Proceeding.

5    For the reasons I set out below I decline to order the transfer. I consider that it is in the interests of justice to instead give the Penalty Proceeding a speedy hearing date in this Court. Although the hearing date will not be fixed until I have heard from the parties in that regard, my present intention is to fix it for hearing on 4 April 2013.

Factual Background

6    It is unnecessary to fully set out the allegations in the Penalty Proceeding. It suffices to note that APCHL was the responsible entity for the Prime Retirement and Aged Care Property Trust ("the Prime Trust"). ASIC alleges that in June and August 2006 each of the Director Defendants voted in favour of resolutions to pass, and then to lodge with ASIC, amendments to the Constitution of the Prime Trust. Relevantly, the amended Constitution provided for payment of a significant fee to APCHL if the units in the Prime Trust were listed on the Australian Stock Exchange ("the Listing Fee").

7    Following the listing on the ASX of the Prime Trust in August 2007, ASIC alleges that APCHL was paid a Listing Fee of approximately $33 million, paid to it in its personal capacity and out of Prime Trust property. ASIC claims that entities controlled by Mr Lewski owned all the shares in APCHL at that time, and that he and entities he controlled obtained the benefit of the payment.

8    While APCHL commenced the Compensation Proceeding against the same Director Defendants (as well as against seven other defendants) in March 2012, a Statement of Claim was not filed until 3 August 2012. ASIC commenced the Penalty Proceeding on 21 August 2012, and a draft Statement of Claim was annexed to the affidavit filed with the originating process. ASIC has been ordered to file an amended Statement of Claim today. Mr Martindale SC, counsel for ASIC, submits that the two proceedings are at substantially the same level of progress. Counsel for the defendants do not contest this.

9    While it is common ground that there is a substantial degree of overlap in the facts relied on in the two proceedings, there are important differences. The Compensation Proceeding involves more defendants and a wider range of allegations including breaches of director’s duties further to those pleaded in the Penalty Proceeding, breaches of contractual duties and fiduciary duties, and negligence. For example, the Compensation Proceeding includes a claim in professional negligence against Madgwicks, the solicitors for APCHL and a claim for breach of fiduciary duties against corporate advisers to APCHL ("the Kidder Williams defendants"). The facts that require to be traversed in the Compensation Proceeding are broader than in the Penalty Proceeding.

POWER to Transfer

10    ASIC contends that because the Penalty Proceeding is a "civil matter" under the Act the CVA is excluded: see s 1337A(2) of the Act. The defendants do not argue against this but nothing turns on it. The two provisions are similar in effect and it is not controversial between the parties that s 1337H(2) creates a power for this Court to transfer the Penalty Proceeding to the Supreme Court if it appears that “having regard to the interests of justice” it is “more appropriate" for it to be determined in the Supreme Court.

11    The principles guiding the exercise of the Court’s discretion are also not controversial: see for example BHP Billiton Ltd v Schultz (2004) 221 CLR 400, and as summarised by Robson J in Irwin v State of Queensland [2011] VSC 291.

12    Various authorities deal with the exercise of the discretion when considering the transfer of proceedings from one court to another court in which a related proceeding is pending. As one might expect, these authorities refer to the desirability of the parallel proceedings being determined in the one forum: See Huntingdale Village Pty Ltd [2009] FCA 1323 at [29] per Gordon J; Henry v Henry (1996) 185 CLR 571 at 590 to 591 per Dawson, Gaudron, McHugh and Gummow JJ.

13    The risks of allowing parallel proceedings often include the potential for inconsistent factual findings, and inconsistent determinations on the same issues, which may be avoided by hearing the matters together. Alternatively, where the proceedings cannot be heard together the risk of inconsistent findings and determinations may be avoided by having the two proceedings heard by the same judge. Allowing parallel proceedings in different courts may also generate delay and wasted costs if both proceedings are being prepared at the same time, and there are often advantages to one court managing the proceedings together.

14    In reliance on such authorities the defendants argue that it is in the interests of justice that the Penalty Proceeding be transferred to be determined in the Supreme Court.

Consideration

A concurrent hearing in one court?

15    I shall deal first with the contention that the Penalty Proceeding should be transferred to the Supreme Court so that it may be heard concurrently with the Compensation Proceeding.

16    In my view, with which the Director Defendants did not cavil, there are real difficulties with having the two proceedings heard together because of their different nature. The Penalty Proceeding is an application for civil penalties and as a result the defendants need not comply with the usual obligations of defendants in civil proceedings. That is, in the Penalty Proceeding the defendants need not:

(a)    make discovery;

(b)    put on witness statements; or

(c)    even notify ASIC of the way in which they intend to present their case.

17    The existence of these rights wash over into the Compensation Proceeding. Until ASIC closes its case in the Penalty Proceeding the Director Defendants need not in the Compensation Proceeding:

(a)    make discovery;

(b)    put on witness statements; or

(c)    advise how they intend to defend the proceeding.

Each Director Defendant is only required to put on a Defence insofar as it does not tend to incriminate him or expose him to civil penalty.

18    When a defendant to a civil penalty proceeding is also a defendant in a civil damages claim ("a compensation proceeding") Courts usually order either a stay of the compensation proceeding or make case management orders so that until the penalty proceeding is heard steps are not taken in the compensation proceeding against the shared defendants. The parties referred to the recent example in the Centro proceedings in which a civil penalty proceeding brought by ASIC against the directors of companies in the Centro Group, and a representative proceeding for damages against those companies, their directors and two PricewaterhouseCoopers entities, were both on foot in the Federal Court: see ASIC v Healey (2011) 196 FCR 291; ASIC v Healey (No 2) (2011) 196 FCR 430, and Kirby v Centro Properties (No 2) 202 FCR 459 (“the Centro Proceedings”). Although the civil penalty proceeding was commenced much later than the class action it was allowed to proceed first and the two proceedings were not heard together.

19    Another consideration is that, unless the plaintiff and the other defendants and cross claimants in the Compensation Proceeding are prepared to proceed without discovery or witness statements from the Director Defendants, it is hard to see how the Penalty Proceeding will not be heard first. While Mr Santamaria QC, counsel for APCHL, indicated that it was prepared to proceed on that basis, there must be a question as to whether the other defendants and cross claimants will. I was informed that cross claims between the defendants to the Compensation Proceeding are in preparation.

20    It is significant that Mr Lewski (who Mr Santamaria describes as the principal defendant to the Compensation Proceeding) accepts through his counsel, Mr Bick QC, that the Penalty Proceeding will go first, rather than being heard concurrently with the Compensation Proceeding. Counsel for the other Director Defendants did not demur. Mr Bick opposes the two proceedings being heard together, and has instead made an application in the Supreme Court seeking that the Compensation Proceeding be stayed pending the result in the Penalty Proceeding.

21    Mr Crennan, counsel for the Kidder Williams defendants in the Compensation Proceeding (the sixth, twelfth and fourteenth defendants), also opposed a concurrent hearing of the two proceedings. In the Supreme Court he argued that they should not be dragged into a penalty proceeding that had nothing to do with them. He contended that “the prospect of having the matters heard by the same court at the same time is from my clients’ perspective unattractive, unworkable and will probably present some adverse outcomes in terms of who the parties are, how prejudice is to be dealt with, who cross-examines and so on.” There is some force to this submission.

22    ASIC too opposes the two proceedings being heard together, arguing that its proceeding is a matter of public importance that concerns only two discrete sets of events and seeks relief available only to it. It says, and I accept, that the serious allegations of misconduct made against the directors should be expeditiously determined. It opposes being burdened by the uncertainty and additional expense that it says would follow were it to be entwined in complex, multi-party civil compensation proceedings.

23    Mr Santamaria can point to no authority indicating that a civil penalty proceeding and a civil damages claim has ever been heard concurrently by a superior court in Australia. He refers only to a decision of Bergin J in Silbermann v CGU Insurance Ltd (2003) 48 ACSR 231 as indicating that such an order is not impossible, although he accepts that even in that case the matters were heard separately and the penalty proceeding went first.

24    I consider it quite unlikely that the two proceedings will be heard concurrently, and the submissions fell well short of satisfying me that it is in the interests of justice that the Penalty Proceeding be transferred so that this might be achieved.

The two proceedings being heard by the same judge?

25    The next argument advanced for the transfer of the Penalty Proceeding is that, even if not to be heard together, a transfer to the Supreme Court is appropriate as it would allow the same judge to hear both proceedings.

26    The benefits in having one judge deal with both matters are obvious, including the avoidance of inconsistent findings on facts and inconsistent determinations on issues, together with the judicial efficiency of only one judge being required to master those facts and issues. This consideration in large part underpins authorities such as Re Huntingdale Village.

27    However, in a case such as this involving allegations of serious misconduct, one might reasonably expect that whichever party was unsuccessful, or was the subject of significant adverse findings in the Penalty Proceeding will apply for recusal of that judge from the Compensation Proceeding on grounds of apprehended bias. Of course, whether findings may lead to disqualification must depend upon their significance and nature (Gascor v Ellicott [1997] 1 VR 332 at 348 per Ormiston JA). However, as was observed by the majority in British American Tobacco Australia Services Ltd v Laurie (2011) 242 CLR 283 at [139]:

… the lay observer might reasonably apprehend that a judge who has found a state of affairs to exist, or who has come to a clear view about the credit of a witness, may not be inclined to depart from that view in a subsequent case. It is a recognition of human nature.

(Emphasis in original.)

28    This was the result in the Centro Proceedings. Notwithstanding the obvious benefits in Middleton J hearing the class action after his Honour determined the penalty proceeding, this was not the result. Entities who were not even parties to the penalty proceeding, but in relation to which his Honour made adverse findings, objected to his hearing the class action on the ground of apprehended bias. His Honour recused himself, quite properly in my view: Kirby v Centro Properties (No 2) at [64].

29    Mr Bick accepts that it was “highly likely” that two judges would hear the two proceedings even if it was transferred to the Supreme Court.

30    The likelihood that the two proceedings will not be heard by the same judge even if the Penalty Proceeding is transferred is relevant to the exercise of my discretion. As Allsop J (as he then was) held in Winpar Holdings Ltd v National Consolidated Ltd [2001] FCA 1663 at [16]:

It is quite inappropriate for two courts to be deciding the same issues between the parties if that matter can be avoided. However, mere overlap of some issues will not, of itself, require transfer. Also, the general statement which I have just identified, that is the inappropriateness of two courts deciding the same issues, can be qualified if in one court two judges are to hear the same issues. If the two judges in one court are to hear the same issues then it seems to me that it is not necessarily so inappropriate that two courts hear the same issues. Questions might arise, of course, as to appeals and the like, and their ability to be consolidated into one court.

31    Similarly, in Matyear v Prismex Technologies (2006) 60 ACSR 210 Barrett J cited Winpar Holdings with approval and observed at [25] that:

It may follow, as an important practical consideration, that transfer will be appropriate only if the judge of the transferee court who is hearing or is to hear the proceedings already on foot in that court will also hear the transferred proceeding

32    I consider that the Penalty Proceeding must proceed first, and that it is likely that two different judges will hear the two proceedings. Having reached that view, the benefits of requiring the Penalty Proceeding to be transferred to the same court as the Compensation Proceeding are much less obvious. If one judge is not to hear both matters then the risk of inconsistent findings and determinations is unavoidable and the judicial efficiency referred to is unavailable. It is not necessarily against the interests of justice to have two courts hear the same issues once it appears that two different judges will likely do so in any event.

Case management considerations

33    The third contention made by the defendant is that, having regard to the interests of justice, it is appropriate that the Penalty Proceeding be transferred to the Supreme Court so that it can be case managed together with the Compensation Proceeding.

34    It cannot be doubted that active judicial management is important in large and complex proceedings like the two proceedings under consideration. However, it is less straightforward to determine whether in the circumstances of this case, having regard to the interests of justice, the Penalty Proceeding ought be transferred to the Supreme Court, not so as to be heard together with the Compensation Proceeding or even heard by the same judge, but so as to be case managed with it.

35    The Director Defendants argue that being required to attend directions hearings in two different courts is expensive and burdensome. They point to the waste that has recently occurred with a number of directions hearings both in this Court and the Supreme Court. However I do not expect that the recent flurry of directions hearings is likely to continue. That activity arises from the recent commencement of the Penalty Proceeding and the understandable concern of the parties and of Robson J as to its effect on the Compensation Proceeding. This judgment resolves the forum of the Penalty Proceeding and fixes a short timetable before it is heard. This should settle the flurry of directions hearings.

36    In the finish it seems that the defendants argue that there is at least a potential for some efficiencies if the two proceedings are heard together. They say also that ASIC has not identified any prejudice in the transfer. This is not so. The prejudice that ASIC complains of is becoming entwined in another larger, more complex, and slower moving proceeding and its concerns in that regard are understandable to a degree.

37    Mr Martindale argues that the possible inconvenience of a few extra directions hearings is insufficient to require the transfer of the proceeding. The Director Defendants argue that any inconvenience or increase in cost is sufficient to require the transfer. In my view, in the context of large, complex, expensive multi-party proceedings like the Compensation Proceeding, a few directions hearings over the next six months are not a major factor in the exercise of my discretion.

38    Importantly, Mr Bick says that it is likely to be about two years before the Compensation Proceeding reaches a hearing date, whereas the Penalty Proceeding will be much quicker. Although Mr Santamaria’s estimate as to the time likely to be taken with the Compensation Proceeding was much less, his estimate seems unrealistic.

39    Mr Martindale indicates that the Penalty Proceeding will be ready for trial in about March/April 2013. Mr Bick indicates that it will be ready to be heard in about June 2013.

Conclusion

40    In my view no clear case for a transfer of the Penalty Proceeding emerges. I dismiss the application.

41    I consider that the interests of justice are best served by ordering an expeditious trial of the Penalty Proceeding in this Court. The speedy hearing of this proceeding means that any inefficiency or expense thought to be likely to arise from the matters proceeding in two courts should be minor. Because the hearing date of the Penalty Proceeding will have been fixed prior to the next directions date in the Supreme Court, the timetable for interlocutory steps in the Compensation Proceeding (particularly with regard to the Director Defendants) may be set. In the Centro Proceedings the ASIC database of documents used in the penalty proceeding was also used in the class action and I can see no obstacle to a similar order here even though the matters are proceeding in different courts.

42    Subject to submissions by the parties as to the date for hearing and the likely duration of trial - which I require by 4 pm on Thursday 27 September 2012 - I propose to fix this matter for hearing on 4 April 2013. If that date proves too soon for the parties then dates may be available in the first half of May 2013.

43    I will order that the defendants jointly pay the plaintiff's costs unless I receive short submissions to the contrary by 4 pm on Thursday 27 September 2012.

Associate:

Dated:    24 September 2012