Australian Securities and Investments Commission v Somerville

ASIC v Sydney Investment House Equities Pty Ltd [2007] NSWSC 434 CASES CITED : Dean-Willcocks v Air Transport International Pty Ltd (2002) 55 NSWLR 64 Payne v Young (1979) 145 CLR 609 Thai Silk Co Ltd v ASER Nominees Pty Ltd (Federal Court of Australia, unreported, 31 May 1989, BC8902945

Australian Securities and Investments Commission (Plaintiff/Applicant) Timothy Donald Somerville (First Defendant) Somerville & Co Pty Ltd (Second Defendant) Nicholas Eugene Jones (Third Defendant) Simon Durant (Fourth Defendant) PARTIES : Calvin Bert Rowley (Fifth Defendant) John Lancelot Bradnam (Sixth Defendant) Christopher Paul Martin Jones (Seventh Defendant) Adam Leslie Troost (Eighth Defendant/Respondent) John William Monsell (Ninth Defendant) Arthur James Wells (Tenth Defendant)

COUNSEL : A J McInerney (Plaintiff/Applicant) R Angyal SC with M Seck (Eighth Defendant/Respondent)

Conrad Gray, Solicitor for the Australian Securities and Investments Commission (Plaintiff/Applicant) SOLICITORS : Yellow Brick Road Group Ltd (Eighth Defendant/Respondent)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

2154/08 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION V TIMOTHY DONALD SOMERVILLE & ORS JUDGMENT 1 HIS HONOUR: In this proceeding ASIC seeks relief under the Corporations Act against ten defendants. ASIC's central contention is that the first defendant, Mr Somerville, provided legal advice as a solicitor in relation to transactions involving what ASIC calls "phoenix activity". According to ASIC's allegation, the activity involves the directors of a company of doubtful insolvency ("the vendor company") transferring the business assets and goodwill of the company to a new company also controlled by those directors ("the purchaser company"). The directors then place the vendor company into liquidation with no assets to pay creditors and meanwhile the director continues to operate the business using the purchaser company structure. 2 ASIC contends that Mr Somerville provided legal advice in relation to eight such transactions. During part of the time when it is alleged that he did so, he was a partner of Somerville & Co, a legal partnership, but from about January 2006 he became a legal practitioner director of an incorporated legal practice called Somerville & Co Pty Ltd ("S Co PL"), which is the second defendant. 3 ASIC claims that each of the vendor companies was in financial distress at the time of the transaction: that is, it was insolvent, near insolvency, or of doubtful insolvency. It contends that each of the eight director defendants met with Mr Somerville and received oral advice from him to the effect that they should sell the business or assets of the vendor company to a purchaser company which they would control, and that in each case except the Second Republicorp transaction, Mr Somerville confirmed his oral advice by a letter of advice to the same effect. 4 ASIC submitted that Mr Somerville's activities constituted a "scheme" concerning phoenix activity, but the respondent to ASIC's application, Mr Troost, contended that no "scheme" had been pleaded, there was no evidence of any such scheme, and there was no allegation that he was aware that there was such a "scheme", and accordingly ASIC's submission was improper and misleading. In fact in ASIC's proposed statement of claim it is alleged that S Co PL recommended a "Scheme", "the Troost Transport Scheme", to a certain specified effect (para 217). There are similar pleadings with respect to the other transactions (see, for example, para 35). Mr Troost submitted that this amounted to pleading that there were eight schemes, not a single scheme. At the very least, however, the various "schemes" pleaded are very similar and have common elements, and therefore it seems to me not inappropriate for ASIC to refer to Mr Somerville's "scheme" in submissions. 5 ASIC contends that each of the third to tenth defendants ("the eight director defendants") acted in breach of the Corporations Act by: · failing to act in good faith in the best interests of the vendor company (s 181)(a)); · failing to act for a proper purpose of the vendor company (s 181(1)(b)); · improperly using his position to gain an advantage for the purchaser company and for himself (s 182(1)(a)); · improperly using his position to cause detriment to the vendor company (s 182(1)(b)); · improperly using information obtained as a director of the vendor company to gain an advantage for the purchaser company and for himself (s 183(1)(a)); · improperly using information obtained as a director of the vendor company to cause detriment to the vendor company (s 183(1)(b)). 6 ASIC contends that Mr Somerville, Somerville & Company and S Co PL were each "involved" (within the meaning of s 79) in each of the eight director defendants' contraventions and in so doing, each of them acted in breach of s 181(2), 182(2) and 183(2). 7 ASIC claims a civil penalty declaration against all defendants under s 1317E(1), a pecuniary penalty order against Mr Somerville under s 1317G(1), disqualification orders against the eight director defendants under s 206C(1), and injunctive relief against various defendants under s 1324(1). 8 The proceedings were commenced by originating process filed on 2 April 2008. Therefore s 1349 applies. That provision has the effect that the defendants are not entitled to refuse to do any act on the ground that doing so might tend to make them liable to a penalty by way of disqualification order. Consequently the eight director defendants cannot rely on the penalty privilege, for the only relief sought against them that might be regarded as a penalty is a disqualification order. Mr Somerville is in a different position because a pecuniary penalty order is sought against him, and therefore, at least prima facie, he has the benefit of the penalty privilege. The applications relating to joinder of defendants 9 The application now before the court is ASIC's application, by further amended interlocutory process filed in court on 11 July 2008, for orders that:

1. the matter proceed by pleadings;
2. ASIC have leave to file its draft statement of claim;
3. if leave is required (which was denied at the time of filing), an order under Part 6 rule 19(1) of the UCPR granting ASIC leave to join each of the defendants;
4. in the alternative to para 3, an order under Part 28 rule 5(1) of the UCPR for consolidation of each proceeding commenced by ASIC against the defendants to the originating process, by the filing in court of the statement of claim;
5. directions for case management, including orders for the filing of a verified defence, a verified list of documents and affidavits, leading to the proceeding being set down for a four weeks hearing. 10 ASIC has filed evidence concerning each of the eight transactions. Ex KF-1 to the affidavit of Kevin Foo made on 31 March 2008 contains documents relevant to all eight transactions, comprising 2673 pages. According to ASIC's evidence on the application, it will seek to rely on the filed evidence against the first and second defendants (Mr Somerville and S Co PL), but in relation to the eight director defendants, ASIC will only seek to rely on the evidence relating to the particular transaction in which the relevant director defendant was involved. It appears that in the case of the eighth defendant, Mr Troost, that is some 231 pages. 11 Mr Troost appears as respondent to the application, to contend that ASIC is not entitled to join him as a defendant in the proceeding, and should not be granted leave to do so. Additionally, he has filed an interlocutory process seeking an order that there be a separate trial of the claims against him, or alternatively an order dismissing the proceedings generally as they relate to him and, if ASIC wishes to re-commence proceedings against the him, that leave be granted for the matter to proceed by way of pleading. 12 According to ASIC's evidence, Mr Troost is the only defendant who has objected to being joined in a single proceeding and who is seeking a separate trial. The evidence indicates that the first, second, third, fourth, seventh, ninth and tenth defendants have consented to the matter proceeding by way of statement of claim and therefore to having the matters heard together. The fifth and sixth defendants have neither consented nor objected. 13 The key provision with respect to joinder of parties is rule 6.19(1), which provides: "Two or more persons may be joined as plaintiffs or defendants in any originating process if: (a) separate proceedings by or against each of them would give rise to a common question of law or fact, and (b) all rights of relief claimed in the originating process are in respect of, or arise out of, the same transaction or series of transactions, or if the court gives leave for them to be joined." 14 In written submissions, ASIC contended that separate proceedings against Mr Troost and against the other defendants would give rise to common questions of law and fact and that the rights of relief claimed in the proceeding arise out of the same series of transactions, and consequently that it is entitled to join Mr Troost as the eighth defendant. In the alternative, it submitted that the court should grant leave for Mr Troost to be joined as the eighth defendant. 15 Mr Troost challenged each of those propositions in written submissions made on his behalf. At the hearing, after reviewing Mr Troost's submissions, ASIC withdrew its contention that rule 16.19(1) gave it the right to join Mr Troost as a defendant, and rely on its alternative submission that the court should grant leave to permit the joinder. 16 In my view, it is relevant to the exercise of the court's discretion to consider the criteria set out in paras (a) and (b) of rule 6.19(1). For example, it would be relevant to take into account, if it were so, that although both criteria have not been met, one of them is present. I shall therefore consider paras (a) and (b), and then other matters relevant to the exercise of the court's discretion. Common question of law or fact 17 Would separate proceedings against each of the ten defendants give rise to a common question of law or fact? What is distinctive about this proceeding is that the liability of the parties alleged to be involved in all eight transactions (the first defendant and, to a degree, the second defendant) is ancillary liability, which will arise only if contraventions by one or more other defendants are proved. It is the common participation of Mr Somerville as legal adviser that links the transactions. But in itself, that is not a foundation for the conclusion that separate proceedings against each defendant would give rise to a common question of law or fact. 18 The transactions identified by ASIC are described in submissions as: (i) the Pidditty Lidditty transaction involving the third defendant, Mr Nick Jones, and his companies; (ii) the Jones Removals and Storage transaction, involving Mr Nick Jones; (iii) the Stimulus Solutions transaction, involving Mr Durant, the fourth defendant, and his companies; (iv) the VMT Holdings transaction, involving Mr Rowley, the fifth defendant, and Mr Bradnam, the sixth defendant, and their companies; (v) the Second Republicorp Company transaction involving Mr Rowley; (vi) the Chatswood Furniture & Fine Art transaction, involving Mr Chris Jones and his companies; (vii) the B & R Storage & Distribution transaction, involving Mr Troost, the eighth defendant, and his companies; and (viii) the Star Chrome transaction, involving Mr Monsell, the ninth defendant, and Mr Wells, the tenth defendant, and their companies. 19 Obviously there are factual connections between transactions (i) and (ii), and transactions (iv) and (v), but subject to this, ASIC does not allege that the transactions are related to one another, except for the fact that Mr Somerville (and in some cases, his incorporated law firm) was involved as legal adviser. In a Media Release dated 27 May 2008, ASIC said the proceeding followed an investigation into eight "non-related companies". Each of the director defendants is alleged to have been involved in only one or (in a few cases) two transactions. It is not alleged that the eighth defendant, Mr Troost, was involved in any transaction other than the B & R Storage & Distribution transaction. 20 Some more specific evidence about the eight transactions is given in the written advices and sale agreements that are in evidence before me. There are virtually identical letters of advice written by Somerville & Co to Nick Jones regarding the Piditty Liditty transaction and, separately, a company restructure; to Simon Durack regarding Stimulus Solutions; to Calvin Rowley regarding Virtual Media Technology and Republicorp; to Chris Jones regarding Chatswood Furniture & Fine Art; and to John Monsell and Arthur Wells regarding Star Chrome. In each case the letter of advice said that the company might be insolvent and identified the risk of liability for insolvent trading. It attributed a significant value to the assets of the company's business, and identified the disadvantages of closing the business down or appointing an administrator, and the difficulties of selling the business on the open market. Then the letter suggested that the only viable alternative open to the director was to transfer the business to a newly formed, solvent company, which he would control. Since there would be no cash in the new company to pay for the full value of the assets, the letter proposed that the old company would hold shares in the new company carrying the right to receive all the dividends paid by the new company until an amount equal to the value of the business was received. That amount, when eventually paid, would be available to pay the creditors of the old company. 21 There is no letter of advice in evidence for the Second Republicorp transaction, and it appears that no written advice was given. But the Second Republicorp transaction has some similarities with the other transactions. The B & R Storage & Distribution Transaction, involving Mr Troost, is different from the other transactions, as I shall explain. 22 The contracts for the sales of business for all eight transactions of which ASIC complains are in evidence. The contracts for the Piditty Liditty transaction, the Jones Removals & Storage transaction, the Stimulus Solutions Management transaction, the VMT Holdings, the Chatswood Furniture & Fine Art transaction and the Star Chrome transaction are closely similar. They involved the sale by the vendor company of its business to a purchaser company in consideration of the purchaser issuing Dividend-V shares to the vendor company, carrying the right to receive all the dividends of the purchaser company until total dividends reached a stipulated amount (evidently, according to the letters of advice, an amount equivalent to the estimated value of the business assets). The agreement provided that trade creditors' debts of the vendor would remain the liability of the vendor after settlement. The agreement also provided that the vendor would terminate the employment of all current employees with effect from the settlement date, and the purchaser would offer the employees re-employment on the same terms and conditions, the vendor remaining responsible for all wages and holiday pay up to the settlement date. The Stimulus Solutions Management, VMT Holdings, Chatswood Furniture & Fine Art and Star Chrome contracts also provided for the vendor to assign to the purchaser all intellectual property associated with the conduct of the business, and the VMT Holdings, Chatswood Furniture & Fine Art and Star Chrome contracts provided for the assignment of debts owing to the vendors (in some cases, excluding debts created by invoicing customers). 23 The contract for the Second Republicorp transaction is similar to the others, in that the consideration for the sale is the issue by the purchaser of Dividend-V shares bearing dividends until the distributions reach an identified figure. The contract also provides for termination and re-employment of employees, and it provides for the assignment of customer debts and intellectual property. However, significantly for present purposes, the agreement contains a promise by the purchaser company to pay the trade creditors' debts of the vendor company up to the settlement date. 24 The letter of advice for the B & R Storage & Distribution transaction, dated 11 June 2003, did not contend that any company associated with Mr Troost might be insolvent, and did not refer to potential liability for insolvent trading. The letter focused attention on a proposal to protect net equity in trucks, trailers and equipment estimated at $400-500,000. The letter explained that these items were owned by or leased through B & R Storage & Distribution, in which 50% of the shares were owned by Mr Troost and 50% by his sister. It said that B & R was also the company that employed the drivers and was accordingly subject to the risks associated with any company employing the workforce. The letter suggested that the ownership and lease equity of the trucks and trailers should be transferred from B & R to a new separate company. It was proposed that the new company would provide for use of the trucks and trailers by Road Sea Rail Logistics Pty Ltd, the trading Co, in return for a fee. As the new company would not have the cash to pay for the equity in many trucks and trailers, the letter suggested that the new company would issue shares to B & R which carry the right to receive all of the dividends of the new company until an amount equal to the value of the equity in the trucks and trailers had been paid. The letter then gave advice on how to pay out Mr Troost's sister's mortgage in a tax effective way. 25 The contract for the B & R Storage & Distribution agreement is in evidence. It provided for the sale of business assets, defined as the vendor's trucks, trailers and plant and equipment, in consideration for the issue of Dividend V shares carrying the right to receive all the dividends of the company up to a specified amount. The parties agreed to do what is reasonably necessary to cause the burden and benefit of all commercial hire purchase and chattel lease agreements relating to any business assets to be transferred to the purchaser. No mention was made of liability to pay creditors, but in the circumstances that liability would remain with the vendor company. One would not expect to see a provision in the agreement dealing with payment of the vendor's creditors in a transaction relating to the sale of only specific assets. 26 There is, of course, a similarity between the B & R Storage & Distribution transaction and the other transactions, in that valuable assets were transferred to a new entity in return for the issue of shares bearing dividend rights but no cash or other asset immediately realisable for value. But the subject matter of the sale was, as I have said, less than the entire business of the vendor, not necessarily any occasion for making provision for the purchaser to become liable for the vendor's debts. Further, the letter of advice did not suggest that the transaction was motivated by a desire to avoid liability for insolvent trading, although in the draft statement of claim ASIC alleges that there was earlier advice that did so. 27 Mr Philip Thompson, who gave evidence for ASIC on the application, contended that the circumstances surrounding each of the eight transactions raise the following common questions of law, and mixed law and fact: (a) the proper construction of the sale of business agreement; (b) the proper construction of the written advice prepared by Mr Somerville in each case; (c) whether the "v class" shares had any value; (d) whether the sale of business agreement was a sham; (e) whether Mr Somerville's scheme was a sham; (f) whether each of the eight director defendants, by entering into the transaction, contravened ss 181(1)(a) or (b), 182(1)(a) or (b), 183(1)(a) or (b); (g) whether Mr Somerville and S Co PL, by providing advice and facilitating the eight transactions, were involved in the eight director defendants' contraventions. 28 As to (a), there might be some common questions of construction of provisions of the sale agreement, though ASIC has not identified any such questions at this stage. As explained above, some of the sale agreements are close to identical, but there is a range of variation of individual clauses, which might reflect significant differences in the bargains reflected in the agreements. 29 As to (b), the position is much the same. ASIC has not at this stage identified any particular question of construction of the letters of advice. Some of them are close to identical with one another, but once again there is a range of variation. 30 As to (c), it is difficult to assess whether the question of value of the Dividend-V shares will be a common question across the eight transactions, in the absence of valuation evidence, but presumably a central factor in the valuation of the shares will be the forecast profit of the purchaser company, which will differ from company to company. 31 As to (d), the question whether in a particular case the transaction was a sham is likely to depend on facts relating to the condition of the company at the time and the motivations of the director. These will vary from case to case. 32 As to (e), ASIC has not explained how it proposes to go about showing that Mr Somerville's "scheme" was a sham, and so I am not in a position to assess whether this is a common question of law or fact across each of the eight transactions. 33 As to (f) and (g), it may be that the same or similar questions of construction of ss 181, 182 and 183 will arise in each case, but it is too early to tell. The application of the statutory provisions will depend upon the findings of fact, which are very likely to vary from case to case. 34 In written submissions, ASIC identified the following common questions of law: "(d) whether a director who causes a company he controls, which is of doubtful solvency (the vendor company), to sell its business assets and goodwill to another company also controlled by the director (the purchaser company) in exchange for the issue of Dividend V class shares in the purchaser company which permit the payment of dividends to the vendor company up to a stated value by the purchaser company in the exercise of the relevant director's discretion, has acted in breach of ss 181(1), 182(1) and 183(1); (e) whether a solicitor, who advises a company to enter, on behalf of the vendor company and the purchaser company, into the transaction described in (d) above, and performs legal services on behalf of the director, the vendor company, or the purchaser company, to give effect to that transaction, is "involved" in the director's contravention of s 181(1), 182(1) and 183(1), in breach of s 181(2), 182(2) and 183(2)." 35 However, the formulation in (d) cannot be applied uniformly across the eight transactions. For example, in the case of Mr Troost the sale was not of the business assets and goodwill but only the vendor's interest in trucks and trailers. In some transactions intellectual property and debts were sold, and in other transactions they were not. In some cases it was expressly provided that the trade creditors remained the liability of the vendor, but in one case the contrary was provided. These are differences that affect the complexion of the legal question to be answered, removing commonality. 36 In summary, I am not persuaded that separate proceedings against each of the ten defendants, or even each of the eight director defendants, would give rise to any common question of law or fact. Nevertheless, in considering whether to grant leave, it is appropriate for the court to take into account the degree of similarity ASIC's cases have against the various director defendants. There would be many similarities in the facts of each case, arising out of the involvement of Mr Somerville in each case and the use of similar though not always identical documentation and similarities in implementation. Each transaction reflected the same pattern of transferring assets to a new company in return for shares entitling the vendor to all dividends up to a stated amount, on the basis of advice from Mr Somerville, followed by liquidation of the vendor entity with insufficient assets to meet the claims of creditors. ASIC will seek to show that each of the eight director defendants signed an agreement for the sale of business on behalf of the vendor and purchaser companies, and that the document was, at least substantially, a pro forma document prepared by Mr Somerville's law firm. In each case, Mr Somerville's firm or S Co PL performed the relevant legal work, and the vendor company went into liquidation shortly after entering into the agreement and selling its business, leaving creditors unpaid. ASIC will contend that in each case the relevant director and Mr Somerville knew or ought to have known certain matters giving rise to liability, including the position of financial distress of the vendor company and the fact that the transaction could delay, frustrate or defeat the claims of the company's creditors. 37 Moreover, the same statutory provisions will be invoked against each of the eight director defendants, although the issues of application of those provisions will vary depending upon the factual findings. And perhaps most importantly, the cases against each of the eight director defendants will be components of ASIC's case against Mr Somerville and his incorporated law firm for involvement in the contraventions by the directors. Plainly it will be an important part of ASIC's evidentiary case against the first two defendants to show that in respect of the eight transactions, there was a pattern and similarity devised by Mr Somerville. 38 In my opinion the similarities are relevant to the court's overall assessment of whether, under s 56 of Civil Procedure Act 2005 (NSW), granting leave to permit joinder of all ten defendants to a single proceeding will promote the just, quick and cheap resolution of the real issues in the proceeding. Rights of relief in respect of, or arising out of, the same transaction or series of transactions 39 Plainly it cannot be contended that all rights of relief to be claimed by ASIC in its draft statement of claim are in respect of, or arise out of, the same transaction. The question is whether they are in respect of, or arise out of, the same series of transactions. The word "same" governs not only the word "transaction" but also the phrase "series of transactions": Payne v Young (1979) 145 CLR 609, at 614 per Barwick CJ; 615 per Stephen J; 616-7 per Mason J. 40 The transactions in the present case bear some similarities to one another, as I have explained, but mere similarity is not sufficient to make them a series of transactions: Payne v Young at 614-5 per Barwick CJ; 616-7 per Mason J. in Thai Silk Co Ltd v ASER Nominees Pty Ltd (Federal Court of Australia, unreported, 31 May 1989, BC8902945), Hill J said (at [23]) that it was "not logical" to regard the coincidence that the applicant was a party to all the contracts in issue as converting what was not a series of transactions into a series. Here Mr Somerville was not even a common party to each transaction, but was merely a common adviser. 41 In my view, in circumstances where the transaction in which Mr Troost participated was unrelated to any of the other transactions, though there were some similarities, the fact that (on ASIC's case) there was a common adviser, whose advice led to transactions that had common characteristics, is not enough to make the eight transactions a series for the purposes of the rule. Moreover, as senior counsel for Mr Troost pointed out, only 13 of the 135 substantive orders claimed in the statement of claim relate to Mr Troost's transaction. Therefore, even if the transactions were a series, the rights of relief claimed in the originating process could not be said to be in respect of or arising out of the series. 42 Nevertheless, the similarities of the transactions, and in particular the fact that (on ASIC's case) they involved the sale of business assets to a new entity in return for Dividend-V shares, followed by the winding up of the vendor entity, are relevant matters to take into account in the exercise of the discretion conferred by rule 6.19(1). Indeed it seems to me that these similarities are a more weighty consideration than the somewhat technical point that the transactions do not form a series. The discretion to grant leave 43 The court's task in deciding whether to grant leave under the equivalent of rule 6.19(1) has been described as follows: "the Court should take whatever course seems to be most conducive to a just resolution of the dispute between the parties, but having regard to the desirability of limiting, so far as practicable, the costs and delay of the litigation … but … leave ought not to be granted unless the court is affirmatively satisfied that joinder is unlikely to result in unfairness to any party": Bishop v Bridgelands Securities (1990) 25 FCR 311, at 314 per Wilcox J. 44 I was taken in submissions to some observations I made in Dean-Willcocks v Air Transport International Pty Ltd (2002) 55 NSWLR 64 at 73-4: "[T]he court's task is to identify disadvantages … [to the defendants, including the possibility of unfairness] and to weigh them up against identified advantages to the plaintiff, to the defendants as a whole, and in terms of the efficient use of the court's resources having regard to the commonality of the issues raised by each claim and the court's ability to case manage so as to minimise the disadvantages." 45 These considerations are now best viewed as an application of the overarching requirement of the Civil Procedure Act that the court should facilitate the just, quick and cheap resolution of the real issues in the proceeding. 46 I agree with ASIC that the following discretionary factors favour the granting of leave: (a) ASIC and Mr Somerville are common parties to all claims; (b) there will likely be a saving of judicial time and resources by one proceeding, constituted with all ten defendants, going to trial, having regard to the similarities to which I have referred; (c) in particular, there will likely be a saving of costs to ASIC and Mr Somerville by one proceeding, constituted with all ten defendants, going to trial, also having regard to the common issues; (d) on ASIC's case, each claim concerns a transaction promoted by the same solicitor, which involved transferring business assets to a new entity in return for the issue of Dividend V shares, and then the liquidation of the vendor entity with insufficient assets to pay creditors; (e) a single proceeding should assist the parties and the court to identify the real issues as the matter approaches trial, and will assist to resolve any contentious questions relating to discovery and subpoenas, and the use of documents; (f) the eighth defendant is the only defendant who opposes the matter proceeding on pleadings and the proceeding, comprising all ten defendants, going to trial; (g) as noted earlier, the penalty privilege has been modified by s 1349; (h) none of the other defendants has pointed to any unfairness caused to them by the proceeding, constituted with all ten defendants, going to trial; (i) Mr Troost has referred to some matters that, according to his submissions, would amount to unfairness to him, but for reasons I shall explain, the matters he relied upon as unfairness can be addressed by appropriate case management of the proceeding. 47 Mr Troost identified nine matters. First, he said that he would have to be represented at a very long hearing, the content of most of which would not concern him. He drew attention to the length of ASIC's documentary exhibit, to which I have referred, only a small part of which applied to him. He said that only seven of the 135 substantive orders claimed by ASIC related to him. He said that ASIC's estimate of a four-week hearing was probably a serious underestimate, as it would allow only 2 1/2 days for evidence and submissions relating to each transaction. 48 It seems to me that this problem can be addressed by close case management of the proceeding. ASIC's evidence on the application is that it will only seek to rely on evidence relating to the B & R Storage & Distribution transaction in its case against Mr Troost. In those circumstances it should be possible for ASIC, with the court's encouragement, to conduct its case in such a way that the days upon which Mr Troost will need to be represented in court will be a limited number of days, notified to him as early as the circumstances allow. In addition to the days upon which evidence relating to the B & R Storage & Distribution transaction is adduced, Mr Troost will presumably wish to be represented when Mr Somerville gives evidence, but it is hard to see why he would need to be present when the court hears evidence of the other seven transactions, although it may be appropriate for his legal representatives to obtain and read the transcript. Senior counsel for Mr Troost submitted that it would be very difficult to manage cross-examination of Mr Somerville by eight defendants. That will present a challenge but it may be possible to address the problem, for example if some defendants agree to a "lead cross-examiner" arrangement, or the court intervenes by preventing repetition of lines of questioning. Additionally, it will be open to the trial judge to make limiting orders under s 136 of the Evidence Act, as discussed below. 49 During argument ASIC invited me to consider whether I should impose conditions on the granting of leave, so as to ensure that these efficiencies were realised. It seems to me premature to do so, when the evidence is not on. I have in mind that the proceeding will be case managed within the Corporations List, and then by the trial judge (when identified), and no doubt both the Corporations Judge and the trial judge will keep in mind the need at an appropriate stage to give directions on these matters. It will be in the interests of ASIC to make sure that proper arrangements are established and well understood as soon as practicable, and therefore ASIC should raise the matter with the judge at an appropriate stage. 50 Second, Mr Troost questioned whether joinder would result in the court's resources being used more efficiently. I am inclined to agree that there would be little if any saving in efficiency in the presentation of cases against the director defendants, by running those cases sequentially within a single proceeding. It seems to me, however, that there is likely to be a significant saving of time and costs for ASIC in presenting its case against Mr Somerville and his company, and for Mr Somerville defending that case. There will also be some enhancement of efficiency in the trial judge reducing to the bare minimum any overlapping of cross-examination of Mr Somerville and other witnesses for the first and second defendants. It seems to me probable that if there were separate cases against each of the director defendants, or even only a separate case against Mr Troost, the amount of time and resources devoted to dealing with the entirety of the disputes between ASIC and the defendants would be increased substantially. The parties before me agreed that if I refuse to allow the joinder of Mr Troost to this proceeding, the proceeding would continue against Mr Somerville and the other seven defendants and would extend to the B & R Storage & Distribution transaction, and so necessarily there would be very substantial repetition of evidence in a separate case against Mr Troost, which would presumably (though not necessarily) come later. 51 Third, senior counsel for Mr Troost submitted that the magnitude of the proceedings would be likely to lead to confusion and unfairness to the defendants. He drew attention to para 193 of the proposed statement of claim, which asserts that Mr Somerville gave Mr Troost some advice based on the insolvency of the 1st Chatswood Furniture Company. That was an error, as that company was involved in the transaction alleged against the seventh defendant, Mr Chris Jones. 52 I am not persuaded that the magnitude of the proceedings was the cause for this error, and therefore that further similar errors are likely at a level that would amount to unfairness to the defendants or cause confusion. The error in para 193 was an obvious slip and I can see nothing that would indicate that it was a consequence of complexity. 53 Fourth, Mr Troost submitted that significant differences in the evidence against each director (on such things as the content of legal advice on the sale of business agreements) would "overbear" the evidence (if any) that is common to all of the claims (citing Bishop, 25 FCR at 314). That remains to be seen, as the evidence of the defendants has not yet been served. But as I have explained, there will be a significant element in the trial concerning ASIC's case against Mr Somerville and his company, leading presumably to substantial evidence about Mr Somerville's involvement in each transaction. 54 Fifth, Mr Troost noted that in the proposed statement of claim, ASIC pleads oral advice by Mr Somerville to the director defendants. That, he said, will amplify the likely differences in evidence. He contended (citing Bishop, 25 FCR at 315) that where oral representations have been made and there has been reliance on such advice, this is a strong factor weighing against the grant of leave. I accept that questions of fact concerning oral advice given by Mr Somerville to individual director defendants and their reliance on that advice may well differentiate ASIC's case against one director defendant from its case against others, but as I see it this will not reduce or impair the efficiency vis-a-vis ASIC and Mr Somerville of conducting the cases against the various directors as part of a single proceeding with the case against Mr Somerville. 55 Mr Troost's sixth and seventh submissions were, respectively, that the defendant directors are likely to plead different defences, and that the evidence about issues relevant to the remedies sought against each defendant director is likely to be different. The directors may, for example, plead that they relied in good faith on the advice of professional advisers under s 189 of the Corporations Act, or that they acted honestly under s 1317S. The validity of those defences will turn on the facts of the transaction in question. As to remedies, the civil penalties provisions raise questions about whether the contravention materially prejudices the interests of the corporation (s 131 7E), and each director may plead knowledge, purpose or intention that could be relevant to the exercise of the court's discretion to impose a pecuniary penalty. Similar factors will be relevant, under ss206C and 206E, to whether disqualification orders should be made. While in some cases the likelihood that such matters may be raised will be a factor against granting leave, in the present case it seems to me that evidence relating to defences and remedies will arise in that part of the hearing devoted to the director concerned (or in a subsequent penalty hearing), and will therefore not interfere with the benefits to ASIC and Mr Somerville of a single proceeding in which the evidence about Mr Somerville's involvement in the eight transactions is received once and for all. 56 Eighth, senior counsel for Mr Troost drew attention to the serious consequences of this proceeding, in terms of penalties and disqualification orders. He referred to ASIC v Sydney Investment House Equities Pty Ltd [2007] NSWSC 434. In that case a defendant made an application for a separate trial on the ground that evidence admitted against another defendant would stand as evidence against him. Barrett J (at [21]) rejected the application, saying that the judge would make findings in relation to a particular defendants solely on the basis of evidence relevant to the case against the defendant, and moreover, while evidence that is admitted will be admitted for all purposes, any demonstrated danger of unfair prejudice arising from its use against a particular defendant would be capable of resolution under s 136 of the Evidence Act. The submission was that the court and the defendants should not have to incur the inconvenience, difficulty and time involved in proceeding in this matter when the problem could be avoided by a separate proceeding against each director defendant. 57 In my view the Sydney Investment House Equities case demonstrates that the court is able to address the risk of unfair prejudice by appropriate means, while achieving efficiencies in other respects. I do not share the apprehension expressed by senior counsel for Mr Troost about the complexity and difficulty that will arise if orders are made under s 136, with a view to protecting each defendant from the risk (such as it may be) that ASIC may seek to rely on evidence concerning another transaction after having said that it would not do so. It seems to me that the concept of ensuring that findings in relation to each defendant are based solely on the evidence relevant to the case against that defendant is not a difficult one to grasp, and its implementation ought to be achievable in a practical sense, given that separate transactions are identified in respect of the alleged contraventions of each of the eight director defendants. 58 Finally, Mr Troost submitted that there is no basis for ASIC to believe that its case against Mr Somerville will be strengthened if he is simultaneously accused of involvement in eight transactions, because his involvement will have to be determined separately with respect to each transaction. In my opinion the submission is correct, but the foundation for granting ASIC leave to proceed against all ten defendants in one proceeding has nothing to do with whether ASIC's case against Mr Somerville be stronger if it proceeds in that fashion. Conclusions 59 It is appropriate, in my view, for the court to make an order under Part 6 rule 19(1) granting ASIC leave to join each of the defendants to the proceeding. It is also appropriate to grant ASIC leave to file the statement of claim annexed to the further amended interlocutory process. It is unnecessary to consider ASIC's alternative ground of relief under Part 28 rule 5(1). Mr Troost's interlocutory application for an order that there be a separate trial, or that the proceeding be dismissed generally as it relates to him, will be denied. I shall hear the submissions of the parties as to costs. 60 I will not at this stage give directions for case management. Instead I will stand the proceedings over to the Corporations List for directions. In the meantime the parties will be able to consider my reasons for judgment and propose (and perhaps even consent to) appropriate directions to be made by the Corporations Judge. I should say that in my opinion it would be premature to allocate hearing dates at this stage.

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