FEDERAL COURT OF AUSTRALIA

Cole v Tillman [2015] FCA 1512

THE COURT ORDERS THAT:

1.    the applicant to these proceedings, Paul Jonathan Cole, be re-designated as the first applicant;

2.    Ezyrent Group Pty Ltd ACN 153 109 883 be joined in these proceedings as the second applicant;

3.    the applicants have leave to amend the originating application in accordance with Exhibit 1;

4.    the proceedings be dismissed;

5.    the first applicant pay the respondents’ costs of and incidental to the proceedings incurred up to and including 1 December 2015;

6.    the first applicant pay the respondents’ costs of and incidental to the proceedings incurred after 1 December 2015 to be taxed on an indemnity basis;

7.    the first and second applicants pay the respondents’ costs of and incidental to the hearing on 11 December 2015, to be taxed on an indemnity basis; and

8.    there be liberty to apply.

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

REASONS FOR JUDGMENT

1    It is common ground that the substantive relief in these proceedings is sought pursuant to s 197 of the Corporations Act 2001 (Cth) (the “Corporations Act”). It is not necessary that I set out the terms of that section. The other relief sought in the amended originating application is ancillary relief, dependent upon the cause of action claimed pursuant to s 197. The nature of the claim is complex. The applicants claim that the second respondent, who is the corporate trustee of a constructive trust, has breached its obligations as trustee and is therefore liable to make reparation, in one form or another, to the beneficiaries, namely the applicants. The applicants also claim that, pursuant to s 197, the first respondent (as a director of the corporate trustee) is also liable.

2    The difficulty which the applicants face is that a legislative provision similar to s 197 was construed by the appellate division of the Supreme Court of Victoria in Young v Murphy [1996] 1 VR 279 as applying only to the recovery of debts incurred by the corporate trustee in performance of the trust, and not to any claim by beneficiaries for breach of trust. The decision depended very much upon the language of the section. The applicants assert, correctly, that the section is no longer in the same form. However, in my view, it is in substantially the same form. Nothing in the relevant explanatory memorandum relating to the present section indicates any intention to vary the propositions established by the decision in Young v Murphy. The correctness of those propositions has not been doubted.

3    The one substantial submission advanced in support of the applicants’ claim was that the heading of s 197 is “Directors Liable For Debts and Other Obligations Incurred by Corporation as Trustee”. The applicants submitted that the reference to debts and other obligations is necessarily wide enough to include claims by the beneficiaries for compensation or other relief, arising out of breaches of trust. Given the history to which I have referred, it seems unlikely that the heading was intended to have that effect. In any event, prior to the 2005 amendment which adopted s 197 in its present form, there was a similar heading. Further in the legislation with which Young v Murphy was concerned, the word “liability” was defined as including a debt, liability or other obligation. In those circumstances, it seems unlikely that the inclusion of the heading indicates any intention to vary the position established by the decision in Young v Murphy.

4    The only basis upon which the applicants seek to invoke the jurisdiction of this Court is the general conferment of jurisdiction in the Corporations Act. If the claim is not made pursuant to s 197, it is not otherwise made pursuant to the Corporations Act. As I have concluded that the claim cannot be made pursuant to s 197, the Court is without jurisdiction. The originating application and the interlocutory application must be dismissed.

5    As to costs, the absence of jurisdiction is the result of the settled meaning attributable to s 197, notwithstanding the fact that the section is now in a slightly different form. That settled meaning is derived from the decision of an appellate Court and is therefore of considerable persuasive weight. In my view, any lawyer who was aware of that decision and the subsequent history of the section should have realised that to commence these proceedings on the basis that they were pursuant to that section would be highly speculative.

6    The matter was raised by the respondents with the applicants in the course of correspondence. The proceedings were commenced on 26 November. The solicitors for the respondents immediately pointed out jurisdictional difficulties although, at that time, s 197 was not mentioned. The applicants wrote on 30 November 2015, indicating that they relied upon that section. The solicitors for the respondents replied on 1 December, asserting that the section had no application to the claim, a view which I share.

7    In the circumstances, at least from 1 December, the applicants were on notice that there was a significant jurisdictional challenge. Had they consulted the relevant authorities, they would have come to the conclusion that their reliance upon s 197 was without merit.

Associate:

Dated:    1 February 2016