Ann Street Mezzanine Pty Ltd (In Liquidation) (ACN 102 854 866) v Beck

Federal Court of Australia|2010-03-22|Before: Mr J, Streeton J

Division: GENERAL DIVISION

Category: Catchwords

Counsel for the Plaintiff: Ms W A Harris and Mr C M Archibald

Counsel for the First Defendant: Ms V Kemp (sol)

Solicitor for the First Defendant: Monahan + Rowell

Counsel for the Second Cross-Respondent: Ms K McMillan SC and Dr A M Dinelli

Solicitor for the Second Cross-Respondent: Johnson Winter & Slattery

Solicitor for the Cross-Respondents: Johnson Winter & Slattery

Counsel for the Fourth Defendant: Mr J W S Peters SC and Mr E F Wheelhan

Solicitor for the Fourth Defendant: Consult Solicitors

Counsel for the Cross-Claimants: Mr J W S Peters SC and Mr E F Wheelahan

Solicitor for the Cross-Claimants: Consult Solicitors

BETWEEN: ANN STREET MEZZANINE PTY LTD (IN LIQUIDATION) (ACN 102 854 866)

QUARTZ NOMINEES PTY LTD (ACN 008 859 103) ATF THE QUARTZ TRUST

ANDRIANNI PTY LTD (ACN 005 458 720) ATF THE ANDRIANNI TRUST

ANN STREET BRISBANE PTY LTD (ACN 101 943 711) ATF THE ANN STREET BRISBANE TRUST

EARLMIST PTY LTD (RECEIVER & MANAGER APPOINTED) (CONTROLLER APPOINTED) (ACN 069 056 926) ATF THE EARLMIST UNIT TRUST

ETNAS PTY LTD (ACN 056 599 350) ATF THE ETNAS TRUST

HEALTHCARE PROPERTIES PTY LTD (ACN 074 501 955) ATF THE HEALTHCARE PROPERTIES TRUST

HUNTINGDALE VILLAGE PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 085 048 531) ATF THE HUNTINGDALE VILLAGE UNIT TRUST

KEEP IT SIMPLE INVESTMENTS (GLOBAL) PTY LTD (ACN 100 871 270)

NORTH SYDNEY DEVELOPMENT PTY LTD (CONTROLLER APPOINTED) (ACN 107 037 838) ATF THE NORTH SYDNEY DEVELOPMENT TRUST

PARAGON APARTMENTS LTD (RECEIVER & MANAGER APPOINTED) (ACN 087 200 413)

ROMPRIDE PTY LTD (ACN 074 524 824) ATF THE ERLEY UNIT TRUST

SCOTS CHURCH DEVELOPMENT LTD (RECEIVER & MANAGER APPOINTED) (ACN 091 686 323)

SILKCHIME PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 066 849 429) ATF THE SILKCHIME UNIT TRUST

VANNIN PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 067 610 271) ATF THE HAY FAMILY TRUST

WARWICK ENTERTAINMENT CENTRE PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 054 246 918) ATF THE WARWICK ENTERTAINMENT CENTRE UNIT TRUST

WESTPOINT FINANCIAL SERVICES PTY LTD (ACN 074 148 324)

WESTPOINT MANAGEMENT (CENTREWAYS) PTY LTD (ACN 082 349 068) ATF THE CENTREWAYS REFURBISHMENT SYNDICATION TRUST

That the Notice of Motion dated 21 January 2010, and filed with the Court on 25 January 2010, be dismissed.
That there be no orders as to costs.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

BETWEEN: ANN STREET MEZZANINE PTY LTD (IN LIQUIDATION) (ACN 102 854 866)

EARLMIST PTY LTD (RECEIVER & MANAGER APPOINTED) (CONTROLLER APPOINTED)

HEALTHCARE PROPERTIES PTY LTD (ACN 074 501 955) ATF THE HEALTHCARE PROPERTIES TRUST

HUNTINGDALE VILLAGE PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 085 048 531)

KEEP IT SIMPLE INVESTMENTS (GLOBAL) PTY LTD (ACN 100 871 270)

NORTH SYDNEY DEVELOPMENT PTY LTD (CONTROLLER APPOINTED) (ACN 107 037 838)

PARAGON APARTMENTS LTD (RECEIVER & MANAGER APPOINTED) (ACN 087 200 413)

SCOTS CHURCH DEVELOPMENT LTD (RECEIVER & MANAGER APPOINTED) (ACN 091 686 323)

SILKCHIME PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 066 849 429) ATF THE SILKCHIME UNIT TRUST

VANNIN PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 067 610 271) ATF THE HAY FAMILY TRUST

WARWICK ENTERTAINMENT CENTRE PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 054 246 918) ATF THE WARWICK ENTERTAINMENT CENTRE UNIT TRUST

WESTPOINT MANAGEMENT (CENTREWAYS) PTY LTD (ACN 082 349 068) ATF THE CENTREWAYS REFURBISHMENT SYNDICATION TRUST

REASONS FOR JUDGMENT 1 The plaintiff, Ann Street Mezzanine Pty Ltd (in liq), and the second cross‑respondent, the Australian Securities and Investments Commission ("ASIC") (collectively, "the applicants") applied by notice of motion dated 29 January 2010 for orders transferring to the Supreme Court of Victoria pursuant to s 1337H of the Corporations Act 2001 (Cth) ("the Act") the whole of this proceeding and the following eight related proceedings: (a) York Street Mezzanine Pty Ltd (In Liq) v Beck & Ors No. VID 484 of 2008;

(b) Market Street Mezzanine Pty Ltd (In Liq) v Beck & Ors No. VID 607 of 2008;

(d) Mount Street Mezzanine Pty Ltd (In Liq) v Beck & Ors No. VID 609 of 2008;

(e) Bayview Heritage Mezzanine Pty Ltd (In Liq) v Beck & Ors No. VID 611 of 2008;

(f) Market Street Mezzanine No 2 Pty Ltd (In Liq) v Beck & Ors No. VID 613 of 2008;

(g) Cinema City Mezzanine Pty Ltd (In Liq) v Beck & Ors No. VID 614 of 2008; and

(h) North Sydney Finance Pty Ltd (In Liq) v Beck & Ors No. VID 259 of 2009;

2 The applicants sought that the orders be brought to the attention of the judge who has the conduct of No 2065 of 2008 ("the KPMG action") currently pending in the Supreme Court of Victoria with a view to the Directors' and the KPMG actions being managed together.

3 The application is supported by the affidavit of Christopher John Connor sworn 29 January 2010 ("first Connor affidavit"), the affidavit of Christopher John Connor sworn 22 February 2010 ("second Connor affidavit") and the affidavit of Christopher John Connor sworn 10 March 2010 ("third Connor affidavit"). 4 The application is opposed by: (a) the third defendant, Graeme John Rundle; (b) the fourth defendant, Norman Phillip Carey, and the cross-claimants, who comprise Mr Carey and twenty-five associated companies; (c) the first defendant, Cedrick Richard Palmer Beck and associated companies or entities; (collectively, "the respondents"). 5 The following affidavits were sworn in opposition to the application: (a) the affidavit of Daniel Joseph Hirsh of the solicitors for the fourth defendant and the cross-claimants, sworn 15 February 2010 ("first Hirsh affidavit"); (b) the affidavit of Daniel Joseph Hirsh sworn 5 March 2010 ("second Hirsh affidavit"); and (c) the affidavit of Stephen John Lemonis of the solicitors for the third defendants, sworn 12 February 2010.

background 6 The background to the application, as set out in the first Connor affidavit, was not disputed. In relation to the commencement, conduct of, parties to, pleadings and cross‑claim in the Directors' actions, Mr Connor deposed: 6 During 2007, proceedings in this Court, being proceeding numbers VID 351 and 386 of 2007, were commenced by Ann Street and York Street and their liquidators against the directors of those companies and entities associated with the First Respondent, Mr Beck.

7 In April 2008, ASIC took over the conduct of the former Ann Street and York Street proceedings in the name of the plaintiff companies pursuant to s.50 of the ASIC Act. However, following the judgment of the Court on 26 June 2008, the former Ann Street and York Street proceedings were discontinued by ASIC and the current proceedings were commenced. In particular:

(a) The current Ann Street and York Streetproceedings were commenced on 30 June 2008; (b) The proceedings by the remaining plaintiff companies (other than North Sydney Finance), were commenced on 1 August 2008; and (c) The proceedings by North Sydney Finance were commenced on 21 April 2009.

8 Statements of Claim in each of the Directors' Actions (other than that brought by North Sydney Finance) were filed on 11 August 2008.

9 Subsequently, on 22 May 2009, pursuant to Orders made by Justice Finkelstein on 9 April 2009, the proceedings in each of the Directors' Actions were amended to join a number of additional parties (referred to in more detail below) and each of the Statements of Claim were amended.

10 The current Statement of Claim in the Ann Street proceeding is the Amended Statement of Claim dated 22 May 2009. This is representative of, and raises identical issues to, each of the claims made by the other plaintiff companies in the Directors' Actions. For the sake of convenience, I will refer in this my Affidavit to the issues in the Directors' Actions by reference to the Ann Street Amended Statement of Claim (Ann Street Directors' SOC). Unless indicated, my observations with respect to the Ann Street pleading apply mutatis mutandis to the other Directors' Actions.

(a) The directors or alleged shadow/de facto directors of the Plaintiff Mezzanine Companies being Messrs Beck, Dixon, Rundle and Carey and Mrs Schiftan. (In this regard, I note that Mr Dixon and Mrs Schiftan were not at any time directors of Mount Street and North Sydney Finance and, as a result, are not Defendants in the proceedings commenced by those companies. In addition, I note that on 21 October 2004 Mrs Schiftan resigned as a director of the remaining mezzanine companies.) (b) Persons and companies associated with Mr Beck, being the remaining Defendants in each proceeding including Needlers End Nominees Pty Ltd, Kebbel Capital Pty Ltd, Palentia Pty Ltd, Conical Hill Nominees Pty Ltd, Hester Brook Pty Ltd, Anna Harris, Turtle Bay Nominees Pty Ltd and Sugarloaf Hill Nominees Pty Ltd.

12 Defences have been filed by most of the Director Defendants in most of the Directors' Actions. In particular:

(a) Defences were filed in the latter part of 2008 to the original versions of the Statements of Claim in the Directors' Actions (other than North Sydney Finance) by Mr Beck, Needlers End Nominees Pty Ltd, Kebbel Capital Pty Ltd, Mr Dixon, Mr Rundle, Mr Carey and Mrs Schiftan. However, no Defences have been filed by any Defendants to the Amended Statements of Claim filed in 2009; (b) Palentia Pty Ltd is not actively defending any of the Directors' Actions and has not filed any Defences in any of them; (c) None of the Defendants to the proceedings commenced by North Sydney Finance have filed a Defence; and (d) The parties joined to the proceedings in April 2009 (Conical Hill Nominees Pty Ltd, Hester Brook Pty Ltd, Anna Harris, Turtle Bay Nominees Pty Ltd and Sugarloaf Hill Nominees Pty Ltd), have not filed Defences to any of the Directors' Actions.

13 On 5 May 2009, Mr Carey and twenty five companies associated with him (Cross-Claimants) filed a Cross-Claim against Freehills (Freehills Cross‑Claim) in each of the Directors' Actions. A Defence to this was filed by Freehills on 3 June 2009.

14 On 8 May 2009 the Cross-Claimants filed an Amended Cross-Claim against ASIC and the Commonwealth of Australia (ASIC Cross-Claim) in the Ann Street proceeding only. This followed an earlier version of that Cross-Claim which was filed during 2008. A Defence to the ASIC Cross-Claim is due to be filed by ASIC and the Commonwealth of Australia on 5 February 2010.

15 By an amended Notice of Motion dated 22 April 2009, Mr Carey and the thirty-three companies associated with him (which include the Cross Claimants to the Freehills Cross-Claim and the ASIC Cross-Claim) sought orders for leave to bring a Cross-Claim against KPMG in each of the Directors' Actions. An affidavit of Mr Hirsh sworn on 22 April 2009 was filed in support of that application and exhibited the proposed form of the Cross‑Claims sought to be filed by Mr Carey against KPMG in each of the Directors' Actions.

16 However the Notice of Motion referred to above was later adjourned to a date to be fixed on the basis that Mr Carey and the proposed cross-claimants to the claim against KPMG were re-considering the form of the proposed pleading. At the present time, no further step has been taken by Mr Carey and the proposed Cross-Claimants to advance a claim against KPMG as part of the Directors' Actions, although it is possible that could occur in the future. 7 Mr Connor deposed to a "global mediation" of proceedings arising from or related to the Westpoint collapse, including the Directors' actions and KPMG action, as follows:

17 On 28 January 2009, the Honourable Justice Finkelstein made Orders referring the Directors' Actions to mediation to be conducted by the Honourable Ian Callinan AO [sic], QC. That mediation (the 'global mediation') was conducted in conjunction with a mediation of the KPMG Action and a number of other Federal Court proceedings commenced by ASIC pursuant to s.50 of the ASIC Act.

18 The global mediation took place for the entire week commencing on 15 June 2009 and resumed for a further day on 31 August 2009. Insofar as it concerns the Directors' Actions and the KPMG Action, the global mediation is continuing, although no date is currently set for a resumption of the global mediation. A number of settlements have occurred in relation to other actions commenced by ASIC under s.50 of the ASIC Act. Further details of those settlements are provided below.

19 As at the date of this application, the pleadings in the Directors' Actions have not closed and there have been no formal steps taken or orders made for preparation and exchange of evidence or for discovery to be given (although ASIC has made some discovery of documents to the Cross-Claimants in relation to limited categories of documents). No trial date has been set in any of the Directors' Actions. 8 In relation to the KPMG action, Mr Connor deposed: 20 The Writ and Statement of Claim in the KPMG Action were filed with the Supreme Court of Victoria on 13 October 2008. KPMG's Defence in the KPMG Action was filed on 13 February 2009 and a Reply by the Plaintiffs on 3 April 2009.

21 On 6 February 2009, the Honourable Justice Pagone made orders referring the KPMG Action to the global mediation to be conducted before Mr Callinan QC.

22 Following the global mediation before Mr Callinan QC in June and August 2009, further pleadings have been filed in the KPMG Action. Now produced and shown to me and marked as indicated below are the following current pleadings in the KPMG Action:

CJC-2 Amended Statement of Claim dated 2 November 2009 (KPMG SOC);

CJC-3 Amended Defence of KPMG dated 2 December 2009 (KPMG Defence);

CJC-4 Third Party Notice and Statement of Claim filed by KPMG dated 27 November 2009 (KPMG Third Party SOC).

23 The persons joined to the KPMG Action as third parties by KPMG are Messrs Beck, Dixon, Rundle and Carey and Mrs Schiftan, who are all defendants to the Directors' Actions.

24 As at the date of this application, the pleadings in the Directors' Actions have not closed and there have been no orders made for preparation and exchange of evidence or for discovery.

25 The KPMG Action is listed for further directions on 5 March 2010 pending the outcome of this application. I note that at page 15 of the transcript of the directions hearing on 11 December 2009 (Exhibit CJC-1), Justice Pagone proposed that if the current application was successful, the 5 March 2010 date should be adjourned and the parties should set aside a day for a directions hearing or preliminary conference to work out how best to manage the consolidated litigation. 9 In the first Connor affidavit, Mr Connor set out the following undisputed summary of the common factual allegations on which the Directors' and KPMG actions are based: 31 The following is a narrative summary of the alleged substratum of factual background as to the manner in which the Westpoint business was operated, relied on by the plaintiffs as underpinning the claims made in the Directors' Actions and the KPMG Action. What follows below is a summary of the allegations made and does not purport to be a statement of facts made from my own knowledge: (a) Westpoint Corporation Pty Ltd (WPC) was engaged in the business of property development throughout Australia. It was effectively wholly owned and controlled by Mr Carey, who was its sole director. It is alleged that for each relevant property development project, Mr Carey and WPC caused to be established: (i) A development company which would generally, but not in all cases, own the relevant land and undertake the proposed development for resale. The development company was in each case wholly controlled and owned (indirectly) by Mr Carey, who was also a director. The development company raised loan funds from independent financiers and banks which loans were secured by first ranking charges and mortgages and which were guaranteed by WPC and related companies within the Westpoint Group (WPC Guarantee). (ii) A mezzanine company was established for the sole purpose of raising additional funds from the public which were to be loaned to the development company on the basis of second ranking securities. The funds were raised by publishing Information Memoranda (IMs) or other fundraising documents, and then issuing promissory notes or similar products which entitled each investor to monthly interest payments generally at 12% per annum payable monthly plus 2% of the value of the notes subscribed for to be paid on the redemption date. (b) Each or most of the mezzanine companies entered into a written loan agreement with the associated development company which required all of the funds raised from investors to be loaned to the associated development company. The terms of the loan agreements required each development company to use all of the funds advanced for the purposes of the particular development project. Interest at 12% per annum was payable monthly by the development companies to each mezzanine company. Generally, the principal was repayable at the completion of the project or on a nominated fixed date, together with a further 2% of the aggregate advances made. The mezzanine company loan agreements specified an event of default if any of the funds advanced were used for a purpose other than the development project.

(c) The loans from the mezzanine companies to the development companies were generally secured by second ranking charges and mortgages provided by the development companies and a guarantee from WPC and other Westpoint entities which was unsecured. It is alleged those securities were manifestly inadequate for reasons including the high gearing and the limited assets of the development companies and the financial position of guarantor entities.

(d) Whilst the funds raised by the mezzanine companies were ostensibly loaned to the development companies and were recorded as such in the accounts of the relevant companies, it is alleged that the majority of the actual cash so raised (after payment by the mezzanine companies of commissions to financial advisers) was, in fact, paid directly by the mezzanine companies to WPC as a supposed `central treasurer'. In each case it is alleged:

(i) There was no `direction to pay' the loan funds to WPC by the development company and no contractual (or even commercial) basis for the mezzanine companies to make the payments, nor was WPC even the parent company of the mezzanine companies;

(ii) There was no contractual or other arrangement as between the mezzanine companies and WPC by which the mezzanine companies were able to be satisfied or protected from the risk of misuse of those funds by WPC. In particular, the guarantee provided by WPC did not provide for any such protection;

(iii) The amounts paid by the mezzanine companies to WPC, together with the amounts paid by the mezzanine companies to financial advisers by way of commissions, were recorded as funds loaned to the development company by the mezzanine company despite the fact those funds were not paid or applied in that manner;

(iv) The cash funds received by WPC from the mezzanine companies were commingled in a single bank account with other funds held by WPC which included monies which had in turn been paid by other mezzanine companies to WPC in the same way;

(v) The mezzanine companies did not require or procure, or attempt to require or procure, that WPC segregate the commingled funds and use those cash funds only for the purposes for which they were raised, i.e. the particular property development;

(vi) WPC used the commingled funds for such purposes as it considered appropriate, including for its own use and for purposes other than the property development for which those funds were raised;

(e) The WPC Guarantee in favour of each mezzanine company did not provide any or any real protection against loss because: (i) The terms of the guarantee in each case merely guaranteed the repayment to the mezzanine companies of principal and interest by the development company in accordance with the loan agreement; (ii) The WPC guarantee in each case was unsecured and did not extend to cover the liabilities of the mezzanine companies to investors in respect of monthly interest payments and repayment of the principal sums invested by investors; and (iii) As the directors of the mezzanine companies knew, WPC and the other guarantor entities had provided similar guarantees in respect of each other mezzanine company and, having regard to the total amounts involved, there was no prospect that WPC or the other entities would ever be in a position to satisfy the guarantee in the event it was called upon;

Accordingly, by causing or permitting the payment away of funds from the mezzanine company to WPC in the circumstances and without restriction, the funds so paid away were lost to the mezzanine companies at the time they were paid away to WPC. The directors of the mezzanine companies caused or permitted the company to lose control of those funds and the manner in which they were applied. In this regard, the plaintiffs' claims against the directors do not necessarily depend on an allegation that the funds paid away by each mezzanine company were in fact not applied by WPC for the purpose of the particular development project for which those funds were raised. However, in both the Directors' Actions and the KPMG Action, it is alleged that in fact the funds paid to WPC were not segregated and were not used only for the particular development project for which they were raised, but rather were applied wholly or in part for a variety of other purposes. In addition, in many cases the mezzanine companies raised funds in excess of the subscription limits stated in the IMs associated with fundraising for each project (oversubscriptions) which were not returned or repaid to investors.

10 Mr Connor identified the undisputed common issues in the Directors' and the KPMG actions as follows:

(a) Whether Messrs Carey and Rundle were directors of the mezzanine companies; (b) Funds paid by the mezzanine companies to Westpoint Corporation Pty Ltd; (c) Breach of trust and oversubscriptions; (d) Inadequate security obtained by the mezzanine companies; (e) Whether and when the Westpoint Group Companies were insolvent or ceased to be a going concern; (f) The conduct of ASIC; (g) KPMG defence and allegations in relation to conduct of the directors generally; and (h) Solvency of the Wespoint Group as at November 2005 and the preceding 25 years. 11 Mr Connor identified and set out the status of the following related Westpoint proceedings brought in the Federal Court: · Bongiorno;

· Casey v State Trustees Limited ("State Trustees")

12 Mr Connor deposed that Pagone J of the Supreme Court of Victoria had expressed his willingness to enter the Directors' actions, if transferred, into the Supreme Court Commercial List and to manage them together with the KPMG action.

Evidence 13 In the second Connor affidavit, Mr Connor: (a) concluded that on the basis of his enquiries, video-link and video conferencing facilities for use in Supreme Court of Victoria proceedings were available, regularly used and virtually identical to those of the Federal Court;

(b) deposed that the majority of relevant documents held by ASIC were stored at Traralgon, Victoria, and noted that their physical location was unlikely to be very significant, as discovery and inspection would take place electronically. (c) deposed to a number of other parties who have commenced proceedings in Victoria, New South Wales, Queensland and Western Australia seeking relief associated with the collapse of the Westpoint Group. 14 In the third Connor affidavit, Mr Connor deposed that: (a) In the State Trustees action, a settlement had been approved between the applicant and State Trustees on 26 February 2010. There were also settlements of State Trustees' cross-claims against Mr Beck, his related entities, Market Street, Mr Dixon and Ms Lynette Schiftan; (b) electronic filing is available in both the Federal and Supreme Courts; and (c) Mr Dixon, Freehills and the Commonwealth (now removed as a respondent to the cross‑claim) did not oppose a transfer to the Supreme Court. 15 Several director defendants and a large number of associated companies opposed the application. 16 Stephen Lemonis, of Mr Rundle's solicitors, deposed that the transfer would substantially inconvenience Mr Rundle because: (a) Mr Rundle faces two charges in New South Wales under the Crimes Act and a prosecution in Western Australia under the Fair Trading Act; (b) Mr Rundle has limited funds; (c) Mr Lemonis is experienced in Federal Court practice and procedure, but not those of the Supreme Court of Victoria. Melbourne agents are retained only as an address for service; (d) the majority of ASIC's relevant documents are held in Western Australia; (e) the majority of Westpoint Group employees and advisers are located in Western Australia; (f) while potential witnesses in the proceedings had not been identified, the Westpoint Group was primarily located in Western Australia and a trial or certain hearing days in Western Australia could be required, in which case, the Federal Court had jurisdiction, and video and other appropriate facilities. 17 In the first Hirsh affidavit, Daniel Hirsh, of the solicitors for Mr Carey, deposed that: (a) Mr Carey considered that the Director's and KPMG actions should be consolidated and heard and managed together; (b) Mr Carey undertook to invite the KPMG parties to consent to the transfer of the KPMG action to the Federal Court, and if they did not, he and the other cross‑claimants would apply for its transfer; (c) the attitude of other parties to the proposed alternative course of seeking the transfer of the KPMG action to the Federal Court was as follows: (i) Mr Rundle and Mr Beck and his related entities would consent; (ii) KPMG would not oppose the transfer of the KPMG action to the Federal Court. It had no preference, but agreed that the actions should be heard together; and (iii) Mr Dixon and Ms Schiftan had not expressed a view. (d) The Director's actions were commenced earlier and were more advanced than the KPMG action. The pleadings were more advanced and there had been some discovery and legal professional privilege determinations. (e) Some related actions carried on by ASIC in relation to the Westpoint collapse were being managed by Finkelstein J in the Federal Court. (f) There has been a global mediation in recognition of the great inter‑relatedness of the proceedings. (g) In the KPMG action, ASIC sought to recover the same losses from KPMG as it sought in the Director's actions. ASIC had not explained why it caused only the KPMG action to be commenced outside the Federal Court. (h) The KPMG action, which was begun on 13 October 2008, has had only three directions hearings and no interlocutory applications. (i) In the State Trustees proceeding (managed by Finkelstein J in the Federal Court) there were cross‑claims by State Trustees against the Directors and KPMG, with a substantial overlap of allegations. Mr Carey was a respondent to the cross‑claim of State Trustees and that action had not settled as against him or, as far as he knew, KPMG. There was no application to transfer the State Trustees proceeding to the Supreme Court; (j) There was also an overlap with issues in the Dukes action which was managed by Finkelstein J. No application to transfer the Dukes action to the Supreme Court had been made. (k) ASIC conceded that there was a significant overlap and interconnectedness with the other Federal Court Westpoint actions and the Directors and KPMG could be joined or named as concurrent wrongdoers in those proceedings. (l) The majority of the defendants in the Director's actions resided or had their registered offices in Western Australia and had greater access to the Federal Court via its Western Australia registry, which they had already regularly used. Mr Hirsh had also used the Federal Court electronic filing system. (m) The Westpoint Group was primarily based in Western Australia and many potential witnesses resided there. The Federal Court in Western Australia had video conferencing facilities. 18 By the second Hirsh affidavit, Mr Hirsh deposed that: (a) The State Trustees' cross‑claim against KPMG had not settled.

(b) Freehills was impartial as to whether the Directors' and KPMG actions were heard in the Federal or the Supreme Court. (c) Mr Beck's seven associated entities opposed the transfer of the Director's actions to the Supreme Court.

legislation and relevant legal principles 19 Section 1337H of the Act relevantly provides: Transfer of proceedings by the Federal Court and State and Territory Supreme Courts

(1) This section applies to a proceeding (the relevant proceeding) in a court (the transferor court) if:

(a) the relevant proceeding is: (i) a proceeding with respect to a civil matter arising under the Corporations legislation; or (ii) a subsection 1337B(3) proceeding; and (b) the transferor court is: (i) the Federal court; or (ii) a State or Territory Supreme Court. (2) Subject to subsections (3), (4) and (5), if it appears to the transferor court that, having regard to the interests of justice, it is more appropriate for: (a) the relevant proceeding; or (b) an application in the relevant proceeding; to be determined by another court that has jurisdiction in the matters for determination in the relevant proceeding or application, the transferor court may transfer the relevant proceeding or application to that other court. …

(6) Nothing in this section confers on a court jurisdiction that the court would not otherwise have.

(7) The fact that some references in this section to the interests of justice include the desirability of related proceedings being heard in the same jurisdiction does not of itself mean that other references to the interests of justice, in this section or elsewhere in this Act, do not include that matter. 20 Section 1337L of the Act provides: Further matters for a court to consider when deciding whether to transfer a proceeding In deciding whether to transfer under section 1337H, 1337J or 1337K a proceeding or application, a court must have regard to: (a) the principal place of business of any body corporate concerned in the proceeding or application; and (b) the place or places where the events that are the subject of the proceeding or application took place; and (c) the other courts that have jurisdiction to deal with the proceeding or application.

21 The principles governing the transfer of a proceeding under s 1337H of the Act are uncontroversial.

22 In BHP Billiton Limited v Schultz (2004) 221 CLR 400 ("Schultz"), the High Court considered the interests of justice in the context of a transfer pursuant to the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW), which was part of a national scheme of cross‑vesting legislation (collectively, "cross-vesting legislation"). 23 The cross‑vesting legislation provides that the transferor court must transfer the proceeding if it appears to be in the interests of justice, thus imposing a statutory requirement to exercise the power in such circumstances. In contrast, s 1337H of the Act states that if it appears, having regard to the interests of justice, to be more appropriate, for the proceeding to be determined by another court, the transferor court may transfer it. 24 While no authority on the relevance of the different terminology of s 1337H was identified, the applicants conceded that s 1337H conferred discretion upon the transferor court. It was common ground that the analysis of the "interests of justice" in the authorities on cross‑vesting legislation was otherwise equally relevant to an application under s 1337H of the Act. 25 In Schultz, Gleeson CJ, McHugh and Heydon JJ, in their joint judgment, observed that "it is both necessary and sufficient that in the interests of justice, the second court is more appropriate". Their Honours stated that "[t]he interests of justice are not the same as the interests of one party, and there may be interests wider than those of either party to be considered", but the "interests of the respective parties, which might in some respects be common (as, for example, costs and efficiency) and in other respects conflicting, will arise for consideration." (at 421) 26 Their Honours recognised, that in some cases, conflicting interests would not attract greater weight than each other, because an advantage derived from a transfer by one party might be matched by "a corresponding and commensurate disadvantage" to the other. They stated: "in such a case justice may not dictate a preference for the interests of either party." (at 422) 27 Their Honours acknowledged the concept of a natural forum based on "connecting factors", including matters of convenience and expense, such as availability of witnesses, the places where the parties respectively reside or carry on business and the law governing the relevant transaction. Such factors had been characterised as "legion" and difficult to weigh in a particular case (see 422-3). 28 Their Honours stated that while in some cases a preponderance of connecting factors might identify a natural forum, in other matters there might be significant connecting factors with two different forums, some of which might cancel each other out. 29 Gleeson CJ, McHugh and Heydon JJ recognised that there was no presumption as to where the interests of justice might come down. Gummow J also stated that the applicant for an order for transfer did not bear a burden of persuasion analogous to an onus of proof. 30 In Huntingdale Village Pty Ltd (Receiver and Managers Appointed), Re Huntingdale Village Pty Ltd (Receiver and Managers Appointed) [2009] FCA 1323 ("Huntingdale Village") Gordon J recognised as a factor relevant to the interests of justice, the existence of two separate proceedings in two courts dealing with the same issue being run concurrently. Her Honour considered (at [29]) that the interests of justice were not served by such a situation, which, if allowed to continue, "would have the potential of inconsistent factual findings and determinations on the same issues. Moreover, it has the potential of generating wasted costs if both proceeding are being prepared at the same time". 31 In Australian Rail Track Corporation Ltd v Twentieth Super Pace Nominees Pty Ltd Trading as Specialised Container Transport [2004] SASC 78 ("Australian Rail Track"), a dispute arose between a rail track owner and a freight train operator over a derailment in which both the track and the train were damaged. The freight train operator issued proceedings in the Supreme Court of Victoria, while the rail track operator commenced proceedings in the Supreme Court of South Australia, where it had issued seven other proceedings (in three of which the freight train operator was the defendant) which were managed as a group. 32 The rail track operator applied unsuccessfully to the Supreme Court of Victoria for transfer of the single related proceeding to the Supreme Court of South Australia. (It argued, inter alia, that any inconvenience to witnesses occasioned by the transfer did not outweigh the fact that all the other actions between the two parties were being managed in one court, which would have assisted their orderly prosecution). Following the failure of the rail track operator's transfer application, the freight train operator applied in the Supreme Court of South Australia to transfer the related action issued there to the Supreme Court of Victoria. 33 Debelle J granted the application, albeit with apparent reservations. His Honour observed that he did not know whether the Judge who had declined to transfer the interconnected Victorian action to the Supreme Court of South Australia had been informed that there were five related actions being managed together there. As the transfer to South Australia had been refused, Debelle J (at [15]-[16]) concluded: It is wholly inappropriate and contrary to the interests of justice that the same issue should be litigated in two different courts in this country. That will result in unnecessary expense to the parties and give rise to a risk of inconsistent decisions. But for the order of Byrne J, an order might have been made that is more appropriate for the action in the Supreme Court of Victoria to have been transferred to this Court and to be heard together with this action. However, given the existence of the order of Byrne J and in the interests of comity, it is inappropriate for this action to continue in this Court.

the parties' principal submissions 34 The applicants submitted that it was more appropriate for the Supreme Court to determine the Director's actions having regard to: (a) substantial commonality of parties, factual allegations and issues in the Directors actions and the KPMG Action;

(b) equivalent facilities and convenience in the Supreme Court;

(c) the Supreme Court's willingness to manage the Directors' actions with the KPMG Action (and KPMG not opposing that course); and

(d) no application having been brought by any party in the KPMG Action for transfer to the Federal Court (although that now appears to be the preference of Mr Carey).

Efficiency and convenience would be served by transferring the Directors actions to the Supreme Court of Victoria so that they could be managed and heard with the KPMG Action. and further:

(a) the places of business of bodies corporate concerned in the proceedings are in Melbourne, Perth and Sydney;

(b) the events the subject of the proceedings took place throughout Australia, including Melbourne; and

(c) the Supreme Court of Victoria (as well as the Supreme Courts of each of the States) would have jurisdiction to deal with the proceedings. 36 The applicants submitted that many of the overlapping actions commenced in the Federal Court had settled. Further, any overlap between the Directors' and KPMG actions and the State Trustees and Dukes actions (which would remain on foot in the Federal Court after the transfer of the Directors' actions) was of minimal relevance. 37 The State Trustees proceeding was brought by investors against State Trustees (as trustee for the notes). Cross‑claims had been brought against the directors (other than Mr Rundle) and Market Street (as issuer of the notes). Settlements had been reached with all parties save KPMG and Mr Carey, who were respondents to the cross‑claim. 38 The cross‑claim against Mr Carey alleged, inter alia, his knowledge of matters including the purpose of the Market Street fundraising, the over‑subscriptions it tolerated and the payment of funds raised from investors to a central treasury. The applicants conceded that the claims traversed similar factual issues to those in the Directors' and KPMG actions. Counsel for the applicants acknowledged that the alternative contribution claims against Mr Carey for breach of duty, misleading and deceptive conduct, breach of trust and assistance of breach of trust were "pretty much word for word taken from the Ann Street pleading". Further, in the KPMG cross‑claim, similar, albeit narrower, claims were made against Mr Carey. 39 The applicants submitted that, any potential for inconsistent findings arising from the cross‑claims in the State Trustees action existed irrespective of the success of the present application, in the absence of any application to consolidate the State Trustees action with overlapping actions in the Federal Court. That course was said to be unlikely, given the history of settlement and inaction in the State Trustees proceeding. The applicants submitted that in any event, it remained open to the relevant State Trustees parties to cure the risk of inconsistent findings by seeking a transfer to the Supreme Court of Victoria. 40 The applicants submitted that, due to similar considerations, there was minimal risk of inconsistent findings in the Dukes representative action. In the Dukes action, the representative investors alleged that a financial adviser had breached his duty and engaged in misleading and deceptive conduct by recommending the Westpoint products, given their structure, characteristics, want of security, return and risk. The applicants submitted that those allegations involved no overlap. They conceded a potential overlap in that the defence alleged that Mr Carey, inter alia, was a concurrent wrongdoer within the meaning of Part IVAA of the Wrongs Act, the particulars of which included knowing receipt of trust property from mezzanine companies in breach of trust while he was the controlling mind of Westpoint Corporation. 41 The applicants submitted, however, the potential overlap was speculative and unclear. Further, as there was no third party claim against the directors as yet, it was based only on their nomination as concurrent wrongdoers. 42 The respondents principally submitted that: The Supreme Court is not a more appropriate forum as: (a) Other matters will remain in the Federal Court which relate to the same issues of fact & law. (b) If the Directors' Actions were transferred, the risk of inconsistent findings of fact and law as between the Directors' Actions, the KPMG Action and the other extant Federal Court proceedings (which have been commenced by ASIC) remains. (c) The majority of the parties oppose the transfer or are uncommitted to the Supreme Court of Victoria forum. (d) The Directors' Actions are more advanced than the KPMG Action to the Federal Court is seized of the issues. (e) ASIC commenced the Directors' Actions in the Federal Court and, for an unexplained reason, later commenced the KPMG Action in the Supreme Court for the same losses. This has the appearance of forum shopping. It is contrary to the intention of the cross vesting scheme and should not be condoned. (f) Most of the defendants to the Directors' Action reside or have their registered offices in Western Australia. These defendants have greater access to the Federal Court through its Western Australian Registry than they do to the Victorian Supreme Court. (g) There is no reason why the Supreme Court is a more appropriate forum than the Federal Court for the hearing of the KPMG and Directors' Actions (assuming they will be heard together). Rightly, ASIC has not pointed to any such matter. If ASIC's application is allowed, proceedings involving the same questions of fact and law and matters of liability as between parties will remain spread across two courts. It is in the interests of justice that Directors Actions and the KPMG Action are heard in the Federal Court so that any such issues can be managed (by the Court on its own motion if necessary) as they arise. 43 The third defendant, Mr Rundle, further submitted that: (a) There is a real possibility of witnesses being required to give video-link evidence from Perth, which could occur in the Federal Court there with appropriate officers and backup.

(b) The non‑Victorian practitioners are not familiar with Victorian Supreme Court practice and procedure.

(c) The subject litigation is truly national in character. The Supreme Court has no substantive advantages over the Federal Court and indeed, the opposite is likely as witnesses will probably have to give video link evidence which is best done in the Federal Court.

discussion 44 Before me, there was much common ground. The history of the Director's and KPMG actions, the commonality of the parties and issues, and their significant overlap, was undisputed. 45 It was undisputed that the Director's and KPMG actions should be managed and heard together in the same court, which would necessitate the transfer of either the Directors' or the KPMG actions from the court in which they had been commenced and were currently on foot. 46 Several parties to both actions (KPMG and Mr Dixon) and Freehills (currently a party only to the Directors' actions) expressed no preference for either court. 47 The applicants submitted that the Supreme Court was the more appropriate forum. The respondents, who constituted a significant numerical majority of the relevant parties, opposed the application. Although many of the respondents were associated companies sharing common representation with individual defendants, there was no sufficient basis on which to conclude that they were in the same interest. 48 The respondents submitted that the Federal Court was the more appropriate forum for both sets of proceedings and Mr Carey undertook, if the present application were refused, to seek agreement for the transfer of the KPMG proceeding to the Federal Court, failing which he would apply to the Supreme Court for the transfer of the KPMG action to the Federal Court. 49 In my opinion, the Supreme Court of Victoria is not, having regard to the interests of justice, a more appropriate forum for the determination of the Directors' actions. 50 The Directors' actions were commenced considerably earlier, and are also more advanced than the KPMG action. While the pleadings have not closed in either case, a large number of interlocutory applications related to pleadings, privilege and other relevant issues have been heard and determined in the Directors' actions, while no interlocutory disputes have been determined in the KPMG action. 51 In so far as the relevant proceedings have any apparent geographical locus, it is Western Australia. A number of individual defendants reside there and a number of corporate defendants have their registered offices there. Further, the Westpoint Group was principally based there, although, as the applicants submitted, its operations were national. 52 The relevance of any traditional connecting factors with Western Australia is diminished in so far as the choice is not between Western Australia and Victoria, but between the Supreme Court of Victoria and the Melbourne Registry of the Federal Court. Both courts have video conferencing and related facilities which would permit Western Australian witnesses to give their evidence by video link. Further, the availability of electronic filing and discovery reduces inconveniences which might otherwise arise from the physical location and transmission of documents. 53 Nevertheless, the third and fourth defendants reside in Western Australia and are represented by Western Australian practitioners who deposed to their unfamiliarity with the Victorian Supreme Court's procedure and practice, but familiarity with those of the Federal Court. The third and fourth defendants also relied on the inconvenience and two fees involved in the use of the Supreme Court's off‑site videoconferencing facilities, while in contrast, the Federal Court had its own facilities in Western Australia, for which a single fee was payable. 54 Although such problems are not insuperable, the transfer would impose a degree of added expense and inconvenience on the relevant individual defendants engaged in large‑scale, complex litigation. 55 Further, it cannot be assumed that the trial judge would order evidence to be given by video link. The trial judge may consider it necessary to see and hear significant witnesses, whose credit is in issue, give their evidence in person. It may therefore be relevant whether the respective courts have the capacity to sit in Western Australia in order to hear the evidence of particular Western Australian witnesses. While the Federal Court has that capacity, the matter was not raised in argument, and whether the Supreme Court of Victoria has an equivalent capacity was not addressed. 56 More significantly, the applicants did not assert that the Supreme Court was more appropriate by reason of any unique advantage, superiority or particular feature unavailable in the Federal Court. Their fundamental justification for the transfer was based on that uncontentious recognition that the Directors' and KPMG actions should be managed and heard together in the same court, which would require transfer and ultimately, consolidation. The applicants submitted that no regard could be had to the respondents' foreshadowed application for transfer of the KPMG action to the Federal Court, as whether it would be made and its outcome (in any event, a matter for the Supreme Court) were uncertain. The applicants submitted that as their application was the only one before this court, and would address the problem of two sets of proceedings involving the same issues, it should not be rejected due to a perception that a merely foreshadowed application to a different court could achieve a better resolution of the identified problems. 57 A transfer of the Directors' actions to the Supreme Court would not, however, effectively address the fundamental problem of risk of inconsistent findings and duplication of costs and resources, as two other proceedings with overlapping issues and parties would remain in the Federal Court. A number of proceedings with common parties, issues and factual substratum would continue to be run concurrently in different courts. 58 The applicants conceded that the State Trustees proceeding currently in the Federal Court (which was not the subject of the transfer application) involved common parties and issues with the Directors' and KPMG actions. They submitted, however, that overlap with the State Trustees proceeding was of minimal relevance, because many of the parties had settled, as could the remaining parties. Nevertheless, the cross‑claims by State Trustees against KPMG and Mr Carey have not settled, and it cannot be assumed that they will. Further, while the overlap with the Dukes action was said to be speculative, in my opinion, there was a common substratum of fact and substantial overlap between the Directors' and KPMG actions and the Dukes action, including the concurrent wrongdoer claims against the director defendants. 59 Where there are multiple interconnected actions in one court and a single interconnected action in another, the transfer of only one or some of the multiple actions cannot resolve the problem. The only comprehensive solution to the risk of inconsistent findings and waste in the present case would be the transfer to and consolidation in the same court of all interconnected actions. The applicants submitted that the transfer of the Directors' actions to the Supreme Court would not "increase the evil". It would, however, foreclose the potentially more fruitful option of an application to the Supreme Court for transfer of the KPMG action to the Federal Court, where a number of more advanced related actions are currently being managed as a group by the same judge. 60 I am not persuaded that, in the present application, it is necessary to disregard the likelihood that the interests of justice would be better served by the transfer of a single interconnected proceeding from another court to the court in which there are multiple interconnected proceedings or that this court should accede to a seemingly less convenient course simply because no other application has been made to it. Such an approach would, in my view, be unduly artificial and inflexible. 61 It is not, of course, open to this court to implement the apparently more effective alternative course of transfer to it of the KPMG action. Such transfer would depend upon the agreement of the parties, or alternatively, a successful application (foreshadowed by Mr Carey) to the Supreme Court. 62 If there were an overlap with issues in the various proceedings in other Supreme Courts arising from the Westpoint collapse, neither the transfer of the KPMG action to the Federal Court nor the transfer of all the interconnected Federal Court actions to the Supreme Court would comprehensively remove the risk of inconsistent findings and waste of resources. The respondents submitted, however, and it was apparently undisputed, that although the actions in other Supreme Courts had a common genesis in the collapse of the Westpoint Group, they involved different issues from those in the Directors', KPMG, Dukes and State Trustees actions. 63 A transfer of only some of a number of interconnected proceedings which are managed as a group by the same judge in one court to another court (in which there is only one, less advanced interconnected proceeding) would not eliminate the risks of inconsistent findings and waste advanced to justify it. Such a transfer could preclude the pursuit of a seemingly more satisfactory foreshadowed course. It would also entail additional inconvenience, inflexibility and expense for particular parties. 64 In all the circumstances, I am not persuaded that, having regard to the interests of justice, the Supreme Court is a more appropriate forum for the determination of the Directors' actions. In my opinion, the application pursuant to s 1337H of the Act should be refused. I certify that the preceding sixty-four (64) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dodds-Streeton.

At a glance

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Judgment (114 paragraphs)

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