Federal Court of Australia

Bective Enterprises Pty Ltd v Pitcher Partners Advisors Pty Ltd [2023] FCA 99

ORDERS

THE COURT ORDERS THAT:

1.    Orders 2, 3, 4, 5, and 6 of the orders made by the Court on 13 December 2022 are set aside.

2.    A case management hearing is fixed for 10 March 2023 at a time to be advised.

3.    The costs of the respondent’s interlocutory application be reserved.

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

REASONS FOR JUDGMENT

(Ex tempore, revised)

WHEELAHAN J:

Introduction

1    The respondent has applied by interlocutory application on notice to set aside procedural orders that were made by consent of the parties on 13 December 2022. The main feature of those procedural orders was to refer the proceeding to private mediation, including a requirement that “the parties are to attend and participate genuinely” in the mediation. In the circumstances that follow, the respondent submits that there would now be no utility in a mediation, and further, seeks orders that would be tantamount to staying this proceeding.

Background

2    By their statement of claim in this proceeding, the applicants allege that the second applicant (Mr Cheek) was the director and controlling mind of the first applicant (Bective). The applicants allege that until 20 June 2017, Bective had a majority shareholding in a company, Dockvest Pty Ltd (Dockvest) which operated a business known as “Zap Fitness”. Until 13 July 2017, Dr Michael Jackson (Dr Jackson) and a company with which he was associated, Jumic Services Pty Ltd (Jumic,) were minority shareholders.

3    The applicants allege that in about mid-2017 Dr Jackson was desirous of relinquishing his shareholding of Dockvest, and retiring from the business. To achieve that end, Dockvest effected a buyback of shares held by Dr Jackson and Jumic. The applicants allege that for the purposes of effecting the share buyback, they retained the services of the respondent.

4    In June 2017, at about the same time the share buyback was being implemented and before it was concluded, Mr Cheek was approached by a potential buyer of the Zap Fitness business. It is alleged that Mr Cheek did not disclose this fact to Dr Jackson before the completion of the share buyback. The applicants allege that prior to the completion of the share buyback they conveyed the interest of the potential buyer to the respondent, and that in breach of its duties the respondent failed to advise them that the approaches by the potential investor should be disclosed to Dr Jackson pursuant to disclosure obligations under the Corporations Act 2001 (Cth). The respondent disputes any liability to the applicant. The grounds of dispute are extensive, and extend to questions concerning the scope of the respondent’s retainer, questions of causation, claims that the applicants suffered no loss, and contributory negligence.

5    In 2018, Dr Jackson and Jumic commenced a proceeding in this Court to which Mr Cheek and Bective were joined as respondents. Dr Jackson and Jumic claimed that they had suffered loss and damage as a result of the breach of obligations of disclosure arising in connection with the share buyback, and in consequence of misleading and deceptive conduct for which Mr Cheek and Bective were alleged to be liable.

6    On 1 December 2018, Mr Cheek and Bective compromised the proceeding brought by Dr Jackson and Jumic. Under the terms of settlement, Mr Cheek and Bective agreed to pay the sum of $4.25 million to Dr Jackson and Jumic by 24 December 2018. The written terms of settlement contained the following releases and covenants not to sue –

3.1.    Upon the date of this agreement, Jackson and Jumic forever release and discharge Dockvest, FLG Bidco, Cheek and Bective (and each of their past and present directors, officers and employees) from all claims or causes of action arising out of or related to the matters the subject of the Proceeding or the Cross-Claim, save for any claims or causes of action for breach of this agreement.

3.2.    Upon the date of this agreement, Dockvest and FLG Bidco forever release and discharge Cheek and Bective (and each of its past and present directors. officers and employees) from all claims or causes of action arising out of or related to the matters the subject of the Proceeding or the Cross-Claim.

3.3.    Upon the date of this agreement, Dockvest, FLG Bidco, Cheek and Bective forever release and discharge Jackson and Jumic (and each of its past and present directors, officers and employees) from all claims or causes of action arising out of or related to the matters the subject of the Proceeding or the Cross-Claim.

3.4.    Upon the date of this agreement, Jackson, Jumic, Dockvest, FLG Bidco, Cheek and Bective hereby severally covenant not to sue any other person in respect of the matters the subject of the Proceeding or the Cross-Claim.

7    By this proceeding, Mr Cheek and Bective allege that had Pitcher Partners advised them of their obligations of disclosure, they would have caused Dockvest to comply with those obligations. Importantly, they allege that had they made the disclosure to Dr Jackson the buyback proposal would nonetheless have proceeded. The applicants allege that they have suffered loss and damage, being their liability to Dr Jackson and Jumic under the terms of settlement, and the legal costs that they incurred in the proceeding, which are quantified at $305,113.42.

8    On 22 December 2022, Dr Jackson as plaintiff commenced a proceeding in the Supreme Court of Victoria at Melbourne against Mr Cheek and Bective. The relief sought was an injunction restraining Mr Cheek and Bective from taking any further step in this proceeding. The statement of claim filed in the Supreme Court proceeding alleges that the claims in this proceeding are in respect of matters that were subject of the earlier 2018 proceeding within the meaning of cl 3.4 of the terms of settlement, and that therefore Mr Cheek and Bective have breached the covenant not to sue contained within that clause. On the evidence before the Court, the only relief sought by Dr Jackson is final relief, which would have to follow a trial.

9    By its interlocutory application, the respondent seeks the following orders –

1.    Orders 2, 3, 4, 5 and 6 of the orders made on 13 December 2022 be vacated.

2.    The matter be listed for a case management conference on a date to be fixed following hearing and determination of the injunction application made in Supreme Court of Victoria Proceeding S ECI 2022 05340.

3.    The parties must notify the Court by email (Associate.WheelahanJ@fedcourt.gov.au) of the outcome of the injunction application made in Supreme Court of Victoria Proceeding S ECI 2022 05340 to enable the Court to list the matter for a case management conference as contemplated in order 2 above.

10    Counsel for the respondent submitted that there was no utility in mediating the present proceeding until the preliminary question whether Mr Cheek and Bective are entitled to bring the present proceeding has been determined. Counsel submitted that the respondent sought a postponement of the mediation until after the determination of Dr Jackson’s claim in the Supreme Court, or any application to transfer that proceeding to this Court for both proceedings to be heard together. Counsel submitted that only then would a mediation have any real utility. Counsel submitted that if Dr Jackson’s claim in the Supreme Court succeeded, the costs of a mediation would be thrown away. On the other hand, if Dr Jackson’s claim failed, it was likely that another mediation might be necessary. It was submitted that in either case to proceed with the mediation was not consistent with the overarching purpose under s 37M of the Federal Court of Australia Act 1976 (Cth) to facilitate the just resolution of disputes as quickly, inexpensively, and efficiently as possible.

11    Senior counsel for the applicants submitted that the claim made by Dr Jackson in the Supreme Court proceeding had poor prospects, referring the Court to the well-known principles essayed in Grant v John Grant & Sons Pty Ltd [1954] HCA 23; 91 CLR 123 relating to the construction of releases. Indeed, counsel for the applicants submitted that Dr Jackson’s proceeding in the Supreme Court was likely to fail. Counsel also submitted that there was an evident lack of expedition in relation to Dr Jackson’s proceeding, and that this raised a real apprehension that this proceeding might be left in abeyance for an extended period because Dr Jackson’s proceeding would not be prosecuted with due expedition. Counsel for the applicants further submitted that no ground had been demonstrated by the respondent to set aside this Court’s interlocutory orders of 13 December 2022, citing a decision of the Queensland Court of Appeal in Rockett v The Proprietors – “The Sands” BUP 82 [2001] QCA 99; [2002] 1 Qd R 307 (Rockett) at 310, 311 (McPherson JA, Williams JA and Wilson J agreeing). Finally, counsel for the applicants submitted that if the Court acceded to the application by the respondent, the applicants would be at the whim of Dr Jackson as to how quickly the Supreme Court proceeding might be prosecuted.

Consideration

12    For the following reasons, I am persuaded to set aside the relevant interlocutory orders made on 13 December 2022.

13    First, I do not accept that the principles referred to by McPherson JA in Rockett are applicable to the question whether interlocutory procedural orders of this Court ought to be set aside. That case concerned final orders of the District Court of Queensland, and the passages relied on by senior counsel for the applicants concerned final orders, as McPherson JA’s citation of Harvey v Phillips [1956] HCA 27; 95 CLR 235 at 243-244 indicates. In this Court, r 39.05(c) of the Federal Court Rules 2011 (Cth) provides that the Court may vary or set aside a judgment or order after it has been entered if it is interlocutory. I consider that there are no constraints on my power to set aside the orders of 13 December 2022, and that the real question is whether in the exercise of my discretion I should do so.

14    Second, at the time the interlocutory orders were made on 13 December 2022, the Supreme Court proceeding had not been commenced. The issues raised by that proceeding alter the complexion of this proceeding. A key issue that is raised by the pleadings in this proceeding is whether Dr Jackson would have proceeded with the share buyback if the applicants had disclosed to him the matters that are in issue. The applicants will likely have the burden of proof on that issue. It seems likely that Dr Jackson will not volunteer any instructions to those acting for the parties while his claim to enjoin the prosecution of this proceeding remains on foot.

15    Third, in view of the changed circumstances, I consider it reasonable for the respondent to change its position in relation to the utility of a mediation at this point in the proceeding. I have no reason to question the current position taken by the respondent, namely that it wishes to know of the outcome of the Supreme Court proceeding before participating in a mediation of the claims made in this proceeding. The change of circumstances has the consequence that I give little weight to the fact that the orders made on 13 December 2022 were made by consent.

16    Fourth, I do not accept the submission by counsel for the applicants that there has been an evident lack of expedition of the Supreme Court proceeding. It appears to me that the Supreme Court proceeding was commenced by Dr Jackson promptly, and that there is unlikely to have been any occasion between the time of its commencement and today to progress that proceeding much further.

17    Fifth, the parties consented to an order that the proceeding be referred to private mediation. A private mediator does not have the powers available to a Registrar, or the authority of the Court, and attracts an additional cost to the parties. In view of the changed circumstances, the respondent might reasonably and genuinely choose to decline to engage in any negotiations with the applicants at any private mediation held at this early point in the proceeding.

18    Sixth, although senior counsel for the applicants sought to persuade the Court that Dr Jackson’s claim was weak, I do not propose to speculate about the merits of that claim, especially in view of the fact that complete evidence of objective surrounding circumstances is not before this Court, and the fact that Dr Jackson is not a party to this proceeding.

19    While it is appropriate to vacate the orders for mediation, I am not persuaded by the submission advanced on behalf of the respondent that this Court should, in effect, stay this proceeding pending the outcome of Dr Jackson’s proceeding, which has been brought in a different court, the progress over which this Court has no control.

20    A question arises as to whether the applicant’s claims in this proceeding and Dr Jackson’s claim in the Supreme Court proceeding are part of a single controversy or matter: see Re Wakim; ex parte McNally [1999] HCA 27; 198 CLR 511 at [136]-[140] (Gummow and Hayne JJ); see also Tucker v McKee [2022] FCAFC 98; 402 ALR 254 at [84]-[87] (Allsop CJ, Kenny and Jagot JJ). With leave, senior counsel for Dr Jackson addressed the Court briefly on a proposal that Dr Jackson be joined as a party to this proceeding so that the whole controversy could be determined by this Court. I express no view on the question whether in those circumstances this Court would have jurisdiction, as the question was not argued, and would require the considered attention of counsel.

21    It is necessary from a case management viewpoint to direct attention to what is to occur in the long term. Counsel for the applicants stated that the applicants had no proposal to bring an application in the Supreme Court to transfer that proceeding to this Court under the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth). I note that the Act is not effective to give this Court jurisdiction that it otherwise lacks: see s 5(9). However, it is also open to any of the parties to this proceeding to make an application to this Court to have this proceeding transferred to the Supreme Court of Victoria, and it is open to counsel for the parties to consider the proposal that Dr Jackson be joined as a party to this proceeding.

22    I will set aside the relevant procedural orders made 13 December 2022 and fix a case management hearing for 10 March 2023. On that occasion I will hear further from the parties in relation to the progress of the Supreme Court proceeding, and in relation to their proposals for the further conduct of this proceeding.

23    I will hear counsel in relation to the costs of the respondent’s interlocutory application.

Associate:

Dated:    15 February 2023