FEDERAL COURT OF AUSTRALIA

Dharah Gibinj Aboriginal Medical Service Aboriginal Corporation v Bulgarr Ngaru Medical Aboriginal Corporation [2015] FCA 580

THE COURT ORDERS THAT:

1.    Paragraph 2 of the applicant’s interlocutory application dated 5 February 2015 (“Interlocutory Application”) be dismissed.

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

3.    Within the next four weeks, the applicant and the first respondent liaise about whether the first respondent has any further documents for discovery, and if so, the first respondent give discovery of those documents within that period.

4.    Within the next four weeks, the seventh respondent informally give discovery in accordance with the discovery order made in August 2014, and such additional documents as the applicant may seek which are relevant to the issues in the proceedings.

5.    If the applicant has any further application for discovery or for leave to amend its pleadings, it should file that application no later than Thursday 4 June 2015, on the basis that the application will be listed for hearing on Thursday 18 June 2015.

6.    The parties confer about whether to seek an order that the matter should be referred mediation by a Registrar of this Court, pursuant to s 53A of the Federal Court of Australia Act 1976 (Cth).

7.    The matter be stood over for directions on Thursday 18 June 2015.

8.    Paragraph 2 of the applicant’s interlocutory application dated 5 February 2015 be stood over until Thursday 18 June 2015.

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

REASONS FOR JUDGMENT

1    In November 2014, the applicant filed an amended statement of claim. The first respondent filed a defence to the amended statement of claim dated 11 December 2014. The claims as against the first respondent in the amended statement of claim are a claim for equitable compensation for participating in breaches of fiduciary duties by the second to seventh respondents and a declaration under s 37A of the Conveyancing Act 1919 (NSW) that the transfer of assets from the applicant to the first respondent was carried out with the intent to defraud creditors and is voidable at the instance of the applicant.

2    Paragraph 81 of the amended statement of claim pleads that at time of the relevant transfer of assets, the first respondent was aware that there were creditors of the applicant and, in particular, that Mrs Gaertner was a contingent creditor who was likely to secure a judgment debt against the applicant.

3    Secondly, the amended statement of claim pleads that at the time of the transfer the first respondent was aware that:

(1)    the transfer of assets to the first respondent without consideration or with manifestly inadequate consideration would mean that the applicant had no assets to meet the claims of creditors, including Mrs Gaertner;

(2)    the second to seventh respondents had, by authorising or permitting the transfer of assets to the first respondent, caused the applicant to confer a benefit on the first respondent to the detriment of the applicant; and

(3)    there was strong evidence that the second to sixth respondents had engaged in serious impropriety and misappropriation of assets as directors of the applicant.

4    Paragraph 82 pleads:

In the premises, the first respondent received the assets of the applicant:

(a)    knowing that the second to seventh respondents were acting in breach of the fiduciary duties and/or

(b)    knowing the circumstances constituting the breach of those fiduciary obligations...

5    In its defence, the first respondent pleads, relevantly, at paragraph 23 that:

…if…the asset transfer involved a breach of the duties owed by the second to seventh defendants to the applicant, the first respondent:

a.    Did not know of the breach or the circumstances constituting the breach;

b.    Did not assist in the breach;

c.    Was not involved in any breach within the meaning of s 694.55 of the [Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth)].

6    At paragraph 24 of its defence, the first respondent pleads:

In the premises, the first respondent has not contravened the Act and has no liability to the applicant in respect of the asset transfer.

7    At paragraph 25 of its defence, the first respondent pleads:

In the alternative, if (which is denied) the first respondent has contravened the Act, in the premises, the Court should not make an order against the first respondent under s 386-15 of the Act or alternatively should relieve the first respondent from liability under s 386-60 of the Act.

8    At paragraph 25A of its defence, the first respondent pleads:

The first respondent denies that the asset transfer was made with intent to defraud creditors within the meaning of section 37A(1) of the Conveyancing Act 1919 (NSW).

9    In the alternative, the first respondent says that it was a purchaser in good faith not having, at the time of the asset transfer, notice of any intent to defraud creditors within the meaning of s 37A(3) of the Conveyancing Act 1919 (NSW).

10    By interlocutory application dated 5 February 2015 the applicant applied for orders, including that judgment be given against the first respondent for damages to be assessed, pursuant to rule 26.01 of the Federal Court Rules 2011 (Cth) and s 31A of the Federal Court of Australia Act 1976 (Cth) on the ground that the first respondent has no reasonable prospects of successfully defending the proceedings.

11    By letter dated 23 February 2015 from MJO Legal to Australegal, the solicitors for the first respondent set out at length their argument that the application for summary judgment was inappropriate and had no reasonable prospects of success and invited the applicant to withdraw the interlocutory application noting that, if the applicant failed to do so, the first respondent may rely on the letter in relation to costs, including a claim for indemnity costs. I was not taken to any response to that letter.

12    On 31 March 2015, the seventh respondent (“Mr Blunden”) filed a defence in these proceedings.

13    The amended statement of claim alleges that at all material times Mr Blunden was the chief executive officer of the applicant and the brother-in-law of the chief executive of the first respondent.

14    By email dated 17 April 2015, the Court was informed that, in the light of service of Mr Blunden’s defence, the applicant had determined that it would not be appropriate to proceed with its summary judgment application against Mr Blunden. Also, as the case against Mr Blunden was said to be closely linked to the case against the first respondent, it was said that it would be “undesirable” to proceed with the summary judgment application against the first respondent.

15    When the matter came on for hearing this morning, Mr  Hochroth, who was representing the first respondent, made an application for his client’s costs of the interlocutory application on an indemnity basis. The application was made by reference to the letter dated 23 February 2015 which, I accept, clearly and carefully explained why the matter was not appropriate for summary disposal. In particular, the letter explained that there were several substantial questions of fact at issue, not the least of which are facts concerning the state of mind of officers of the first respondent. The letter referred to authorities to support its contention that the application had “no prospects of success”.

16    Mr Hill, acting for the applicant, submitted that each of the applicant and the first respondent should bear their own costs of the interlocutory application. He submitted that the late service of Mr Blunden’s defence provided an explanation for the decision not to proceed with the summary judgment application. He also complained that the first respondent had not complied with certain discovery orders, saying that if there had been compliance, then there would have been an application for further amendment of the statement of claim to plead new material facts, and that the summary judgment application would have been made on the basis of that further amended pleading.

17    Mr Hill also contended that the significant tender bundle, upon which his client would have relied in the event that the summary judgment application had been made, contains documents from which inferences could readily have been drawn to support the matters set out in the amended statement of claim.

18    In my view, the first respondent was correct in contending that this is not an appropriate matter for a summary judgment application: see Spencer v The Commonwealth [2010] HCA 28; (2010) 241 CLR 118. It is clear that there are significant issues of fact to be tried, including issues that relate to the state of mind of officers of the first respondent.

19    I do not accept that the filing of Mr Blunden’s defence has a material bearing on whether summary judgment ought to have been granted against the first respondent. I also do not accept that the issues raised by Mr Hill in relation to discovery have a material bearing on the summary judgment application. As the lawyers for the first respondent noted, on a summary judgment application, the Court will draw all reasonable inferences in favour of the non-moving party.

20    Where there is a real issue of fact relevant to a pleaded cause of action, it cannot be said that there is no reasonable prospect of defending the claim. Having said that, and despite the careful letter of MJO Legal explaining the position to the applicants, I am not satisfied that the circumstances justify a departure from the usual rule that costs are payable on a party and party basis: cf Seven Network Ltd v News Ltd [2009] FCAFC 166; (2009) 182 FCR 160. The application was eventually not pursued. Accordingly, I will simply make an order that the applicant pay the first respondent’s costs of the interlocutory application.

21    Mr Blunden also seeks his costs of the summary judgment application. The circumstances are plainly different in that, when the summary judgment application was filed, Mr Blunden had not filed a defence. He only did that several weeks after the application for summary judgment was made and, accordingly, I will not make an order that the applicant pay Mr Blunden’s costs of the summary judgment application.

Associate:

Dated:    12 June 2015