The statement of claim makes repeated reference to unjust enrichment (see paragraphs 19-20, 56, 73, 190, 210, 224-228, 231, 232, 235, 266). No attempt is made to demonstrate how the elements of a cause of action based on unjust enrichment of the respondents have been satisfied. Although Mr Morton's written submissions refer to authorities on the principle of unjust enrichment they do not explain how the allegations in the statement of claim relying on that principle can be sustained.
Lack of Standing
The respondents submit that many of the allegations made in the statement of claim purport to be on behalf of Truefeat (now Mitchell) and Budlyre and that Mr Morton has no standing to maintain an action on behalf of those companies or in their name (if that is what he has attempted to do).
The obscurity of the pleading makes it very difficult to characterise the nature of the claim being put forward. The relief sought in the statement of claim (which is not the same as that sought in the amended application) suggests, in part, that Mr Morton is seeking relief on behalf of or in the name of Truefeat. For example, paragraph 16 of the orders sought requires Budlyre and Benelan to reimburse Truefeat "any all [sic] monies owed". Some of the allegations suggest, however obscurely, that moneys that should have been paid to Truefeat were not paid to that company. To the extent that the statement of claim purports to claim relief on behalf of Truefeat (or, for that matter, any of the other respondents) it should be struck out, at least in the absence of pleadings that demonstrate clearly Mr Morton's entitlement to seek relief on behalf of Truefeat or the other companies.
The Remainder
The defects I have identified in the statement of claim as presently pleaded would result in the bulk of the 110 pages being struck out. It is possible that a meticulous process of sifting through the remainder might allow some plausible causes of action to be discerned, albeit with great difficulty.
I have already referred to the fact that Mr Morton claims an order (in effect) declaring the deeds of company arrangement void. Other paragraphs in the statement of claim make allegations that the administrator (and the firm of which he was a member), in substance, failed to discharge duties they were bound to discharge. Some of these allegations are made in paragraphs 192-210. However, allegations are scattered throughout the statement of claim in no particular order and without being linked to particular relief (see, for example, paragraphs 225-228, 238).
In particular, it seems to be alleged that creditors were given false or incomplete information and that the administrator failed to obtain assets of Truefeat and Budlyre in the interests of the creditors of those companies. It is also alleged (without particulars) that the administrator favoured the interests of the Franks family over those of other creditors.
I have not, of course, formed any view as to whether any of these allegations can be substantiated. Moreover, Mr Morton may face difficulties in establishing a claim to substantive relief in his capacity as a creditor of Truefeat and Budlyre, having regard to the provisions of the Corporations Law. But I cannot at this stage rule out the possibility that parts of the statement of claim might provide the basis for a case which could survive the test applicable in a strike out application. The authorities appear to accept that an administrator owes fiduciary duties, although the precise nature of those duties and the persons to whom they are owed may be a matter for debate: James v Deputy Federal Commissioner of Taxation (1988) 88 ATC 4812, (NSW CA) at 4818-4819, per Mahoney JA; Commissioner of Taxation v B & G Plant Hire Pty Ltd (1994) 14 ACSR 283 (FCA/Gummow J.), at 291.
I include within the category of claims that Mr Morton might be able to plead, his contention that he is entitled to recover moneys owed to him by Benelan (which has not been subject to a deed of company arrangement and has not been deregistered). Like other allegations in the statement of claim, those against Benelan are not property particularised and are difficult to follow. It may be, however, that they could be put into a form that would pass the relevant tests.
I do not, however, think that the appropriate course is to tease out that which conceivably might be saved in the statement of claim. There is simply too much objectionable material interwoven with that which might support an arguable case. Too
much of the remainder is neither particularised nor in a form that the respondents (or the Court) can readily follow. While it is a question of degree, I am firmly of the view that no part of the present pleading should be permitted to stand.
Leave to Replead?
The respondents urge that Mr Morton should not be permitted to replead his case. Alternatively, they argue that he should not be permitted to replead except on condition that he meets any costs order made against him, although they recognise that (given Mr Morton's financial circumstances) such an order would be tantamount to refusing him leave. The respondents have a number of powerful arguments on their side.
Mr Morton has shown that he is prepared to file and rely on lengthy documents in support of his case that are very difficult for his opponents (and the Court) to follow. There is no particular reason to think the next version of the statement of claim will be different in this respect. The evidence strongly suggests that Mr Morton is quite prepared to attempt to relitigate issues already resolved against him. His own evidence also suggests that he is prepared to make extravagant allegations without deigning to provide particulars (including allegations of misconduct on the part of judicial officers). He is effectively immune from the constraints imposed by a potential or actual costs order. On his own evidence, he has no means to satisfy a costs order (other than any claims he may be permitted to make in the proceedings). Mr Morton's written submissions
state explicitly that the existence of criminal proceedings against him (which he attributes to the actions of the Franks interests) "motivates [him] to continue this matter to the very end". The respondents have incurred substantial costs in proceedings that show no signs of reaching a hearing. To allow Mr Morton to replead will expose them to further substantial costs, perhaps with relatively little prospect that he will be able to establish any case he might replead.
I have taken these considerations into account. But it must be remembered that the test for denying a litigant the chance to have his or her day in court is a stringent one. A strike-out application based on the inadequacy of the pleadings is not to be determined by an assessment of the prospects that Mr Morton will be able to make out any case he is permitted to plead. Moreover, if it be relevant, Beazley J. did not dismiss Mr Morton's application for interlocutory relief on the ground that there was no serious issue to be tried, although her Honour considered the case "weak". Attempts should be made to ensure that the costs incurred by the parties are minimised, but the respondents' exposure to costs is not, of itself, sufficient to warrant Mr Morton being denied an opportunity to replead his case.
This does not mean that Mr Morton should be left at large to replead his case. Any amended pleading must take account of these reasons for judgment. If the fresh pleading, for example, simply restates or reformulates allegations I have held are not
open to Mr Morton, the Court should be able to deal with the situation. Moreover, any fresh pleading should be prepared in conformity with the rules of the Court, to which I have referred.
I think that the appropriate course is to permit Mr Morton and the other applicants to apply for leave to file an amended statement of claim within 42 days. However, in my view, any such application for leave should be accompanied by affidavits, in appropriate form, showing that there are facts which can probably be proved and which, if proved, would support the general statements made in the statement of claim.
A direction requiring such affidavits was made by Lockhart J. in Trade Practices Commission v Australian Iron & Steel Pty Ltd (1990) 22 FCR 305. In that case, his Honour struck out a statement of claim which contained some of the defects of the present statement of claim. In view of the difficulty the applicant had experienced in formulating its case, his Honour considered (at 323) that the opportunity to replead should be conditional upon terms that the proposed amendments be verified by affidavit satisfying the Court that there really were facts which could probably be proved and which, if proved, would support the general allegations in the statement of claim. A similar order was made by Lockhart J. in A. & S. Oayda Investments Pty Ltd v Burns Philp Trustee Company Ltd (In Liq.), FCA, 25 November 1994, unreported.
In this case there has only been one attempt to formulate a
statement of claim. However, the pleadings are grossly deficient. Moreover, as I have said, the evidence shows that Mr Morton is prepared to make allegations which, on their face, are extravagant. This is not to say that all his allegations are necessarily without substance. It does suggest that, in fairness to the other parties who must bear the cost of continued proceedings, any application for leave to replead should be supported by affidavit material suggesting that the allegations in the statement of claim can be sustained. If any amended draft statement of claim prepared by or on behalf of the applicants purports to plead a case on behalf of the deregistered corporate applicants, affidavits should be filed demonstrating that the corporations have been restored to the register and that they have authorised the application for leave to file the amended statement of claim or that such an application is otherwise properly made.
I emphasise that no amended pleading can be filed as a matter of right. It will be necessary for Mr Morton and (if they are to remain parties) the other applicants to apply for leave to file an amended statement of claim.
I intend to direct that any further pleading or draft pleading and any affidavits filed by Mr Morton or the other applicants be in typewritten form. The Federal Court Rules do not require pleadings or other documents filed to be typewritten. Order 41, r.2 requires only that documents are "clear, sharp, legible and permanent" and do not bear "any blotting, erasure, or other
alteration as to cause material disfigurement". In my view, much of the material filed does not meet the standards of legibility required by the Rules. The difficulty of reading voluminous material rapidly, even where the handwriting is in capital letters, imposes unreasonable burdens on the other parties and on the Court. It is relevant that Mr Morton has recently been able to file extensive typewritten submissions. I think Mr Morton should continue this practice. In my view he will be caused no substantial prejudice or difficulty by this direction.
Mr Morton should pay the costs of the motion to strike out the statement of claim. I have given consideration to whether I should direct that Mr Morton pay those costs as a condition of being granted leave to replead. Having regard to his financial position, such an order would be tantamount to denying him leave to replead his case. I do not think such a course should be taken at this stage. If the next version of the statement of claim (if any) retains the defects of the current statement of claim, the position may well be different.
TRANSFER OF THE PROCEEDINGS
As I have previously observed, Mr Morton elected to move from Brisbane to Canberra in early July 1996. Accordingly, he no longer pressed his motion that the proceedings be transferred to the Queensland Registry of the Court (from which they had been transferred by order of Spender J. on 21 July 1995). Rather, he
sought the alternative order, that the proceedings be transferred to the Australian Capital Territory Registry.
In part, Mr Morton relied on his current (albeit short term) residence in Canberra and the same health and financial considerations that he used to support his unsuccessful application for adjournment of the proceedings. He also relied on the fact that (as the evidence established) Truefeat, Budlyre and Benelan are companies registered in the Australian Capital Territory and carrying on business there. Mr Morton asserted that certain documents are located in Canberra.
Mr Morton acknowledged that the administrator and his firm were based in Sydney. However, he contended that there would be no substantial hardship in their having to defend the proceedings in Canberra, particularly as they had conducted part of the administration of Truefeat and Budlyre in that city. While the Franks were residents of the United States, Mr Morton submitted that it was a matter of indifference to them whether the proceedings remained in Sydney or Canberra.
In my view, if the case had reached the stage where pleadings were complete and the matter was approaching a hearing there might be some force in Mr Morton's submissions. I express no firm view on the question, since a great deal will depend on the issues to be resolved at a hearing (if one is to be held) and the place of residence, not merely of the parties, but of any witnesses to be called at the hearing.
Mr Morton submitted that most of his witnesses at the hearing would be from Canberra. But at this stage it is not known what issues, if any, the applicants will be permitted to raise in such amended pleadings as they may seek leave to file. Moreover, Mr Morton was not able to explain satisfactorily why the people to whom he referred (who were mostly creditors of Truefeat and Budlyre) were likely to be witnesses in his case.
In my opinion, it is not appropriate at this stage to direct the proceedings to be transferred to the Australian Capital Territory Registry. It would be productive of very great inconvenience to the parties and the Court and cause substantial additional expense if another judge were required to deal with any application for leave to file an amended statement of claim. A judge of this Court has already ordered the transfer of the proceedings from Brisbane to Sydney. The pressing task is to determine whether the applicants should have leave to replead and, if so, on what issues. That is most conveniently dealt with in Sydney.
I appreciate that this course will cause some inconvenience to Mr Morton. However, I do not consider the inconvenience substantial and certainly not enough to warrant transfer of the proceedings to Canberra.
If and when pleadings are closed and the issues are clarified, it will be open to Mr Morton to raise the question of transfer again. I think the appropriate course is to dismiss the motion
seeking transfer of the proceedings, but without prejudice to renewal of the application after the close of pleadings. The costs of the motion should be costs in the respective causes.
THE ADMINISTRATION AND BANKRUPTCY PROCEEDINGS
Mr Morton submitted that orders should be made that the administration and bankruptcy proceedings be heard together. As I followed him, Mr Morton contended that the issues in the two sets of proceedings were so interconnected that they should be heard at the same time. He maintained that he had a claim against the substituted petitioning creditor, Mitchell (formerly Truefeat), that was greater than any debt he might owe to Mitchell.
The debt relied on by Mitchell in the bankruptcy proceedings is that said to be created in consequence of the orders made by Hill J. in the Franks proceedings on 24 October 1994 and 17 March 1995. As I understand it, Mr Morton wishes to dispute the validity or effect of these orders although it is as yet unclear what grounds, if any, he intends to rely on to achieve this result, except that he regards the proceedings as an abuse of process. In any event, Mr Morton wishes to rely on a set-off or claim he says he has against Mitchell (Truefeat) arising from pre-administration debts due to him by that company.
Thus far, Mr Morton has not properly pleaded any case against Mitchell. It is conceivable that he may be able to do so, consistently with the orders I intend to make. I am inclined to
think that there will be substantial difficulties in Mr Morton's path, but I have formed no view as to whether these difficulties are insurmountable.
In my view, the bankruptcy proceedings should take their ordinary course, subject to any directions that the judge conducting the proceedings might impose from time to time. At this stage, it is not clear whether Mr Morton will be permitted to plead a case against Mitchell. Furthermore, if he is permitted to plead such a case it is not yet clear what other causes of action, if any, will be joined in the same proceedings. The judge giving directions in the bankruptcy proceedings may defer the hearing of the application for a sequestration order until the administration proceedings are concluded. He or she may take some other course. Whatever view is taken, it does not seem to me to be appropriate to tie the bankruptcy proceedings to a case which may or may not be permitted to proceed and which may or may not involve allegations supporting a cause of action in Mr Morton against his petitioning creditor.
Accordingly, the motions for the administration and bankruptcy proceedings to be heard together should be dismissed. The costs of these motions, however, should be costs in each cause.
REPRESENTATION OF THE RESPONDENTS
Mr Morton objected to the one firm of solicitors and the one counsel representing all respondents (other than the fifth
respondent). He also objected to the legal representatives, (counsel and solicitors) of the respondents (other than the fifth respondent) continuing to act for any of the respondents.
One contention put by Mr Morton, if I understood him correctly, was that the solicitors and counsel had acquired confidential information in the course of acting in the proceedings. The nature of this confidential information was not identified and the contention appeared to rest on mistaken assumptions. In any event, this ground was not made out.
Mr Morton's second complaint was that there was a conflict between the position of the administrator of Truefeat and Budlyre and that of the Franks interests, since they were shareholders of Truefeat and Budlyre. Mr Morton was apparently prompted to take this point because of comments made by a Judge of the Court on an unsuccessful application by Mr Morton for leave to appeal against the refusal of Beazley J. to grant an injunction. In the course of argument his Honour observed that
"the administrator has to be impartial as between creditors and shareholders. So I do not see how [counsel] could appear for him and a shareholder."
It was not necessary for his Honour to make a ruling or to deal further with the point.
The authorities suggest that the Court has power to protect itself by ensuring that parties whose interests conflict, by ensuring that it has the assistance of independent counsel representing those interests. The position was summarised by Young CJ in Nangus Pty Ltd v Charles Donovan Pty Ltd (In liq.) [1989] VR 184 (S Ct Vic/FC), at 185-186:
"Mr Southall's second argument however was that the guarantor was not liable under the guarantee for any damages arising from the breach of the lessee's obligations under the lease. If this argument succeeded the whole of the burden of damages payable would be thrown on the first appellant. A clear conflict of interest arose.
Mr Southall assured us that his instructions were that both of his clients, who were represented by the same solicitors, agreed to the course he was pursuing notwithstanding the apparent conflict and upon that assurance we allowed the argument to proceed, reserving the question whether any difficulty would arise in disposing of the appeal.
In view of the conclusions at which we have arrived, no difficulty does arise in our disposing of the appeal. It should not however be assumed that the Court would, on another occasion, allow a similar course to be followed.
The general rule undoubtedly is that counsel ought not to appear for two clients whose interests may conflict: see Halsbury's Laws of England, 4th ed., vol.3, para.1143. The first case cited as authority for that proposition is Day v Ponsonby (1842) 5 I. Eq. R. 24 in which counsel for a plaintiff moved for an order that the Accountant-General should draw on the case in bank to the credit of the cause pursuant to the general allocation report in favour of several persons mentioned in the report. By that report, a certain sum of money, in which the plaintiff was not interested, was allocated to a creditor. The sum was included in the notice upon which counsel moved. The same counsel also moved on a separate brief on behalf of a third person that the money so allocated to the creditor should be paid to the third person. The report of the case is very short and simply records that the Court was of the opinion that counsel could not hold the two briefs.
Another authority is Re Burton, Danby v Burton [1901] W.N. 202 in which counsel announced upon an originating summons that he appeared for the trustee who had no beneficial interest in the outcome of the proceedings and also for the life tenant. The question for determination on the summons was whether a certain receipt was to be treated as capital or
income. Farwell J. would not allow the summons to proceed observing: 'It is the duty of the trustee's counsel to assist the Court and he ought not to argue on behalf of a beneficiary.' Farwell J.'s decision has been continuously acted upon ever since.
Reference may also be made to Re Morgan, Brown v Jones (1927) 71 Sol.Jo.650 in which Clauson J. said, at p.651: 'The principle is that where trustees are represented by the same solicitors, and one of them is interested in the trust fund beneficially, it is prima facie the solicitor's duty to employ separate counsel to represent the independent trustee in order that the Court may have the assistance of such separate counsel.'
Every case must depend upon its own circumstances but it is important to notice, as Re Burton and Re Morgan show, that the Court is concerned that it should have the assistance of independent counsel for parties whose interests are not identical in the case before it. The Court must necessarily be concerned for its own protection.
For the reasons which I have given it is unnecessary to go further in the present case. It is sufficient to say that where the interests of two parties apparently conflict or may conflict it will be for the Court to say whether there may be a departure from the prima facie rule."
Mr Lever, as I followed him, did not dispute that the interests of the administrator of a company and those of a shareholder might conflict, depending on the circumstances. However, he submitted that there was no difficulty in the present case. This was because the administration had been completed and, in any event, it was not up to Mr Morton to challenge the decision of the respondents to be represented by the one firm of solicitors and the one counsel.
I do not think that the two points relied on by Mr Lever necessarily provide a complete answer to Mr Morton's contentions.
The statement of claim, despite the obscurity of its language and confused presentation, is intended to make allegations about the conduct of the administrator during the course of the administration. As I have indicated, it may be open for Mr Morton as a creditor of the companies formerly under administration to allege breaches of fiduciary duty by the administrator. If these allegations are pleaded, and the pleadings are permitted to stand, the interests of the administrator and the shareholders of the company may not be identical. This may be so notwithstanding that the administration has concluded.
Furthermore, as Nangus v Charles Donovan shows, it is open to a party to draw to the attention of the court a conflict or apparent conflict. It is then a matter for the court to determine what action should be taken.
However, I do not think that any conflict has been shown to exist in relation to the matters presently before the Court. The proceedings before me involve a series of interlocutory motions, including an application to strike out Mr Morton's statement of claim. All respondents represented by the same solicitors and counsel appear to have the same interest in relation to the matters argued before me. At least it has not been shown that their interests diverge to such an extent that the Court cannot receive the assistance to which it is entitled. If that position changes, it will be open to the Court to take appropriate steps.