Austrim Nylex Limited v Kroll [2001] VSC 168

Supreme Court of Victoria|2001-05-18|Before: Warren J

STAY OF PROCEEDINGS - related proceeding in Queensland where Constitutional issue is raised - not exercised in ordinary course by court - no prospect of success in appeals shown - no prejudice demonstrated if stay not granted - application dismissed.

In this proceeding the plaintiff seeks to obtain orders to compulsorily acquire shares held by the various defendants in the company, National Consolidated Limited.

An application is brought by the eighth and ninth defendants seeking to stay the proceeding pending the determination of two appeals in what are said to be two related proceedings before the Court of Appeal of Queensland.

The first of the Queensland proceedings is entitled Elkington v Paulls Limited No. 680 of 2001 and I hereafter refer to that proceeding as the "constitutional appeal". The second proceeding is entitled Elkington v Paulls Limited No. 3262 of 2001 and I hereafter refer to that proceeding as the "substantive appeal".

It is said on behalf of the applicants that there is much benefit to be gained in this court staying the determination of the present proceeding until the outcome is known of the appeals in each of the constitutional and substantive appeals pending determination before the Court of Appeal of Queensland.

Principally, the following two grounds are relied upon by the applicant. First, that the Queensland proceedings are related to the present proceeding in this court. Secondly, that it is in the interests of comity for this court to await the outcome of the determination of the Queensland matters.

The plaintiff opposes the application and urges that the proceeding be determined in the ordinary course in order to achieve commercial certainty. It is also said on behalf of the plaintiff that the delay of the present proceeding in this court continues to cause a drain on the resources of both the plaintiff and the company.

The principles to be applied by a court on a stay application are well known. They are set out in all the relevant authorities. It is a fundamental principle that a plaintiff is entitled to have a proceeding tried in the ordinary course of the procedure and business of the court, subject only to an exercise of the jurisdiction to grant a stay on proper grounds: Rochfort v John Fairfax & Sons Ltd (1972) 1 NSWLR 16; Dart Industries Inc v Buckley & Nunn Ltd (1991) AIPC 37, 944 (SC(Vic)); McCaffrey v Port Stephens Shire Council 91992) 27 NSWLR 299; National Safety Council of Australia v Fordham (SC(Vic), McDonald J, No. 5195/1989, 16 June 1993 unreported).

The defendants must show by evidence that the proceeding is frivolous and vexatious or that for some other reason it should be stayed: Ronald v Harper [1913] VicLawRp 80; (1913) VLR 311 at 318; National Safety Council of Australia v Fordham (supra).

It is settled law that the power to grant a stay is an extraordinary jurisdiction. It will only be exercised in exceptional circumstances: Gerah Imports v Duke Group Ltd in liq) (1994) 119 ALR 401-409; Commissioner of Taxation (Cth) v Meyer Emporium Ltd (1986) 120 CLR 220 at 222 and Australian and New Zealand Banking Group Ltd v Merribee Pastoral Industries Pty Ltd; (1988) 84 FCR 367. Even where an appeal is pending in the proceeding itself a stay will not generally be ordered: McBridge v Sandland [1918] HCA 59; (1981) 25 CLR 369, Reuters Australia Pty Ltd v Credit Connection Pty Ltd [2000] NSWSC 221 (Young J).

In summary, therefore, it is a power that is not exercised in the ordinary course by the court, rather it has been described by the authorities as an extraordinary jurisdiction. Usually the authorities require an applicant to demonstrate on evidence that that the proceeding is frivolous and vexatious or that there is some other compelling reason to urge a court to stay the proceedings. The authorities have also considered that even where an appeal is pending in the primary proceeding itself, the stay will not ordinarily be ordered, or certainly not as a matter of course.

In this proceeding, having had the opportunity to consider the matters set out in the various affidavits in support of the application, I cannot be satisfied that the Queensland proceedings are necessarily directly related to the present proceedings at all. But more importantly there is another issue to be determined: should this court stay a proceeding pending the outcome of a proceeding in another jurisdiction where a constitutional issue has been raised? In New South Wales the view taken by the courts in that state has been to reject applications for a stay including where the stay related to matters arising as to the constitutionality of aspects of the Corporations Law: see, McDonald (as liquidator of FFC Realisations Pty Ltd) v Favelle (1998) 28 ACSR 432.

In the Federal Court a similar view has been taken and indeed that jurisdiction has indicated that it is necessary for an applicant seeking to stay a proceeding to demonstrate that there is some prospect of success. Finkelstein J made the following comments in Australian and New Zealand Banking Group Ltd v Merribee Pastoral Industries Pty Ltd (1988) FCR 367 at 381:

"In a case where a stay is sought pending appeal ... it is not sufficient merely to show that there is on foot some process that seeks to have the impugned order set aside or quashed. For one thing, it is necessary to show some prospect of success in the proceeding: Rahme v Comonwealth Bank of Australia [1993] HCA 62; (1993) 68 ALJR 53 at 54-55. Further, as Dawson J said in Gerah Imports [v Duke Group Ltd (in liq) [1994] HCA 3; (1994) 68 ALJR 196; 119 ALR 401] at 197; 403: 'There are other matters to be taken into consideration in the exercise of the discretion to grant a stay ... ' Any loss which may be caused to interested parties by the granting of a stay must be taken into account. And the balance of convenience is always something to be considered."

In this case, the defendants have not shown a prospect of success in the appeals. In fact, the constitutional appeal is doomed to fail. The arguments the subject of the constitutional appeal, namely that part 6A.2 of the Corporations Law is invalid, were strongly rejected by the trial judge at first instance. The defendant in that case asserted that:

(a) the whole of the Corporations Law was invalid because Victoria had adopted legislation in identical terms to legislation in the Australian Capital Territory, and that represented "an impermissible delegation of State Power to the Commonealth" (see p.3 of Douglas J's judgment dated 22 December 2000 in Pauls Victoria Limited v Dwyer & Others); and

(b) part 6A.2 of the Corporations Law is invalid because it does not provide the acquisition of shares on "just terms".

"There can be ... no argument that a State such as Victoria has the plenary power to enact legislation identical terms to the Corporations Act 1989 ... All [s,7 of the Corporations Victoria Act] does is pick up amendments in identical terms. If in fact the State of Victoria, for instance, wished not to pick up a particular amendment, it could do so because of the fact that it has reserved to itself the right to amend or repeal the law. There can be no suggestion, in my view, that in this scheme the State of Victoria has abdicated its responsibility for the law-making power. It is, in my view, clear beyond argument on the present state of authorities that the Corporations Law is a valid enactment of the State of Victoria and that, in particular, part 6A.2 is valid. The second limb of the argument before me was that the acquisition must be on 'just terms'. In my view, that again is fundamentally in error. ... In the upshot, I declare that, insofar as the terms of part 6A.2 of the Corporations Law relates to the present application, it is valid."

The authorities relied upon by Douglas J (including Union Steamship Company of Australia Pty Ltd v King [1988] HCA 55; (1988) 166 CLR 1, esp at 9-10; R v Duncan ex parte Australian Iron and Steel Pty Ltd [1983] HCA 29; (1983) 158 CLR 535; Capital Duplicators Pty Ltd v Australian Capital Territory [1992] HCA 51; (1992) 177 CLR 248 at 264-265; Gould v Brown (1998) 193 CLR 346) I note, with respect, clearly support his Honour's decision. In particular, Kirby J's remarks in Gould v Brown at 585 para [288] are precisely on point though obiter, and are demonstrative of the fallacy of the first constitutional argument advanced in Pauls. Kirby J said:

"Care must be observed in the application of these rules to cooperative legislation schemes within Australia whereby the several legislatures of the nation, in pursuit of the desirable objective of uniform laws, agree to adopt a common standard and to cooperate in its modification and improvement from time to time. This is not a relinquishment of legislative responsibilities. It is the exercise of them. It is not the creation by one legislature of a new and different legislative authority (which would be forbidden). It is the decision of that legislature to exercise its own powers in a particular way. A legislature, such as a State Parliament, may delegate legislative power so long as it does not abdicate it ... There is no suggestion in the State Act that the State Parliament abandoned or renounced its power, at any time, to amend or repeal that Act. Detailed provisions are contained in the Act to integrate the uniform law into the law of the State. This Court has made it clear several times that no objection arises to the Commonwealth's making a law 'by adopting as a law of the Commonwealth a text which emanates from a source other than the Parliament'. The same is true of a Parliament of a State. It could scarcely be otherwise within the one Federation where the polities constituting the Federation must necessarily cooperate in many ways to achieve peace, welfare and good government for the people within their respective jurisdictions. It follows that the argument of abandonment of legislative power should be rejected."

As to the second constitutional argument in Paul's, Douglas J said that it was "fundamentally in error" because the legislation pursuant to which the acquisition of the shares takes place is State legislation, not Commonwealth.

In any event, I observe that s.664F of the Corporations Law expressly provides for the payment of compensation to the persons from whom the shares are acquired. There is no basis whatsoever for the argument that the compensation there specified is other than "just".

I cannot be satisfied on the material before me that there is at this stage made out prospects of success so far as the applicant is concerned with respect to the constitutional appeal. Indeed, I was taken to parts of the judgment of Douglas J, and I note that His Honour in the course of his reasons has rejected the constitutional arguments put before him as being tantamount to hopeless.

In all the circumstances of this matter, I cannot be satisfied that it is appropriate to exercise my discretion and stay the proceeding.

There is one further basis upon which I consider my view is borne out. It behoves an applicant in the place of the eighth and ninth defendants to demonstrate that there will be prejudice if the present proceeding is not stayed pending the determination of the Queensland appeals. No prejudice has been demonstrated so far as I have been able to ascertain.

In all the circumstances, therefore, I consider that there is no basis upon which the proceedings should be stayed and accordingly the application by the eighth and ninth defendants will stand dismissed.

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