Benjamin Hornigold Ltd v John Bridgeman Limited

NEEDHAM J 1 These proceedings were commenced in September 2023 by way of Originating Process, and a later Statement of Claim filed 13 March 2024. The plaintiff seeks damages against each of the four defendants under various provisions of the Corporations Act 2001 (Cth). The claims arise out of, relevantly, the relationship between the plaintiff, and each of the first defendant, John Bridgeman Limited (JBL) which provided investment management services, and the fourth defendant, JB Markets Pty Limited (JBM), which is a financial services company. 2 The plaintiff claims damages arising out of, very broadly speaking, decisions taken by the first defendant under a management services agreement with the plaintiff, and any liability of the fourth defendant as the holder of the Australian Financial Services Licence under which the first defendant operated, as well of alleged breaches of fiduciary duty by, inter alia, the first defendant. The second and third defendants are not active participants in the current applications before the Court, and while participating in the proceedings more generally, have not appeared on these related applications. 3 The first and fourth and defendants are not represented by lawyers. Each of them has made an application that a director represent it otherwise than by a solicitor. I have dealt with the application of Mr Peter Aardoom, a director of the fourth defendant, in Benjamin Hornigold Ltd v John Bridgeman Limited (No 2) [2024] FCA 1041. A limited grant of leave was made for Mr Aardoom to carry on the proceedings on behalf of the fourth defendant, otherwise than by a solicitor, extending to the following actions: (a) the filing of a defence, (b) the filing of evidence, and (c) filing any interlocutory application for Mr Aardoom to continue representing the fourth defendant. 4 That leave has now expired, but by consent of the plaintiff and Mr Aardoom, it was extended so that the specified actions can be completed, rather than the order expiring on a particular date. 5 Mr Aardoom appeared by video link before me on the hearing of these applications. He did so pursuant to that leave. 6 The first defendant has now sought leave for Mr McAuliffe, a director, to carry on the proceedings for the first defendant, otherwise than by a solicitor. The application is dated 17 October 2024, but was filed on 18 October 2024. Mr McAuliffe also appeared before me by leave on the hearing of these applications. 7 It is common ground that JBL is now deregistered, and immediately prior to its deregistration on 24 November 2024, had only two directors, instead of the three required by s 201A(2), of the Corporations Act. Mr McAuliffe was one of those directors. 8 The applications which came before me on 6 February 2025 are as follows. (a) an application by the plaintiff to strike out various parts of the fourth defendant's defence; (b) a costs order against Mr McAuliffe for costs thrown away on 18 October 2024, those costs to be paid on the indemnity basis, in a lump sum fixed at $14,297.40, and to be paid forthwith; (c) a costs order against Mr McAuliffe for the application for the non-party costs order, those costs to be paid on a party-and-party basis, in a lump sum fixed at $6,870, and to be paid forthwith; (d) an application by the plaintiff to dismiss the first defendant's interlocutory application, filed on 18 October 2024, and that Mr McAuliffe pay the costs of that application; and (e) the abovementioned extension of leave granted to Mr Aardoom for the fourth defendant to carry on the proceedings without its solicitor, for the limited purposes dealt with above.

Strikeout application 9 The plaintiff seeks to strike out various portions of the fourth defendant's defence. The plaintiff contends they fall into a number of categories: (a) discursive commentary on matters which are not strictly in response to the pleading, and so not in compliance with a number of subparagraphs of r 16.02(2). These are the last four sentences of paragraph 18 of the defendant, and paragraph 96(b) from the second sentence to the end. (b) references to previous litigation in the Supreme Court of Queensland in paragraphs 97(d), 98, 101, 112, 127, 128, 131, 132, 134, 137, 138(a), and the paragraph numbered 5 under the words "in addition" between paragraphs 138 and 139. (c) conclusory but vague statements which are said not to be possible to plead to - the second and third sentences in the paragraph before the words "Additional Information" after paragraph 142, and the paragraphs 1 to 5 headed Additional Information. 10 Mr Hynes, for the plaintiff, read an affidavit of his instructing solicitor, Mr Catchpoole, affirmed 28 October 2024 on the application for strikeout. In his affidavit, Mr Catchpoole annexed correspondence which set out the portions to which objection was taken, and seeking the fourth defendant's consent to striking out those portions. Mr Aardoom replied refusing consent, saying: JB Markets does not consent to the proposed orders to strike out certain parts of its defence to the misleading statement of claim, as it believes the information is very relevant to the case. 11 Counsel for the plaintiff drew my attention to the recent case of Yap v Chong [2024] FCA 1326, (Colvin J) at [14] to [16], where his Honour referred to the requirement that a pleading fulfill its function: 14 The required characteristics as specified in the Rules ensure that the pleadings in any case fulfil their function as stated by the High Court in Dare v Pulham (1982) 148 CLR 658 at 664, namely (a) they furnish a statement of the case sufficiently clear to allow the other party a fair opportunity to meet it; (b) they define the issues for decision in the litigation and thereby enable the relevance and admissibility of evidence to be determined at the trial; and (c) they give an understanding of the claim in aid of the right to make a payment into court. 15 The modern approach to pleadings eschews undue technicality or any counsel of perfection in favour of a practical approach which seeks to ensure that pleadings fulfil their functions. It gives effect to the overarching purpose of the Court's procedure now expressed in s 37M of the Federal Court of Australia Act 1976 (Cth). 16 It is just as important for pleadings to disclose with clarity what is not in issue as it is for them to disclose the nature of the case that is to be advanced. A statement of claim should be clear as to how far the claims goes and a defence should be clear as to those aspects of the case advanced by the applicant that are not in issue. Therefore, in considering whether a pleading exhibits the required characteristics (and thereby serves its required functions), it is important to evaluate what is contained within the pleading as well as what is absent, particularly whether the pleading fails to articulate the limits of what is in issue. 12 The relevant sections of the Federal Court Rules 2011 (Cth) (FCR) for the plaintiff's application are r 16.02, regarding the content of pleadings, and 16.21, relating to strikeout. They provide as follows: 16.02 Content of pleadings - general (1) A pleading must: (a) be divided into consecutively numbered paragraphs, each, as far as practicable, dealing with a separate matter; and (b) be as brief as the nature of the case permits; and (c) identify the issues that the party wants the Court to resolve; and (d) state the material facts on which a party relies that are necessary to give the opposing party fair notice of the case to be made against that party at trial, but not the evidence by which the material facts are to be proved; and (e) state the provisions of any statute relied on; and (f) state the specific relief sought or claimed. (2) A pleading must not: (a) contain any scandalous material; or (b) contain any frivolous or vexatious material; or (c) be evasive or ambiguous; or (d) be likely to cause prejudice, embarrassment or delay in the proceeding; or (e) fail to disclose a reasonable cause of action or defence or other case appropriate to the nature of the pleading; or (f) otherwise be an abuse of the process of the Court. (3) A pleading may raise a point of law. (4) A party is not entitled to seek any additional relief to the relief that is claimed in the originating application. (5) A party may plead a fact or matter that has occurred or arisen since the proceeding started. 16.21 Application to strike out pleadings (1) A party may apply to the Court for an order that all or part of a pleading be struck out on the ground that the pleading: (a) contains scandalous material; or (b) contains frivolous or vexatious material; or (c) is evasive or ambiguous; or (d) is likely to cause prejudice, embarrassment or delay in the proceeding; or (e) fails to disclose a reasonable cause of action or defence or other case appropriate to the nature of the pleading; or (f) is otherwise an abuse of the process of the Court. (2) A party may apply for an order that the pleading be removed from the Court file if the pleading contains material of a kind mentioned in paragraph (1)(a), (b) or (c) or is otherwise an abuse of the process of the Court. 13 The portions of the Defence objected to by the plaintiff in the first category do not appear to comply with the requirements of a pleading. For example, one of the portions at the end of paragraph 96(b), includes the words "it seems very disingenuous ...". That statement, which is only an example of some of the expression of some of Mr Aardoom's disquiet about the proceedings brought against the fourth defendant, is clearly frivolous and vexatious and does not disclose a reasonable defence. It, and those in the same category, should be struck out. The fourth "additional information" category falls foul of the same rules, and in addition is embarrassing, in the sense used by Tamberlin J in Shelton v National Roads and Motorists Association Limited [2004] FCA 1393 at [18]. 14 The portions of the defence referring to the Supreme Court of Queensland litigation, which was an application to set aside a statutory demand, do not do anything more than assert that: The JBL loan has been dealt with by the Supreme Court of Queensland already in various formulations, and does not plead any ramifications of that assertion. The orders of the Queensland Supreme Court are attached to an affidavit of Mr Catchpoole, which was read on the costs submissions, and provide only that a statutory demand amount be varied. That appears at Court Book (CB) 16. 15 The "additional information" reads more like submissions, and is neither responsive to the statement of claim, nor matters properly otherwise raised in defence. Again, these portions should be struck out. 16 Mr Aardoom, who prepared the pleading, accepted to some extent that he had gone beyond the bounds of the statement of claim and the rules of pleading, but said that the claim was much more complicated than the pleaded issues. He suggested in his written submissions at paragraph 5, that: The plaintiff did not need to apply for a strikeout. They can just reply to JB Market's defence. JB Market based its defence on the plaintiff's pleadings, and the plaintiff has had the opportunity to respond to JB Market's defence. 17 In oral argument, he suggested that the best outcome to save cost and expense was for the plaintiff to deal with the issues in a Reply. That, however, does not deal with the fact that requiring a party to plead to such vague assertions, or unformed allegations of an Anshun or issue estoppel arising out of the Queensland Supreme Court proceedings, is contrary to the purpose of pleading, which is to provide a sufficiently clear statement of case, so that the other parties can meet it, and to define the issues between the parties: see Yap v Chong at [14]. 18 In the end however Mr Aardoom accepted the plaintiff's contention that an amended defence could be served on the plaintiff for the purpose of obtaining the plaintiff's consent to the amendments. 19 The proposed short minutes of order suggests that: 1. Pursuant to r 16.21 of the Federal Court Rules 2011 (Cth), those parts of the fourth defendant's defence which are the subject of strike through in the document annexed to these orders and marked "A" be struck out. 2. The fourth defendant file and serve within 7 days an amended defence providing for a strike out of those parts of the defence which are the subject of order 1 above. 2A. The plaintiff confirm whether it consents to the fourth defendant filing the Proposed Amended Defence under order 2 within 2 business days of its receipt. 2B. In the event that the plaintiff consents, the fourth defendant is to file the Proposed Amended Defence within 2 business days of receipt of that consent. 2C. In the event that the plaintiff does not consent, the fourth defendant file an interlocutory application seeking leave to amend its defence in the form of the Proposed Amended Defence within 2 business days of receipt of the plaintiff's non-consent, returnable for directions at the Case Management Hearing listed on 21 February 2025. 3. The fourth defendant pay the plaintiff's costs in respect of its interlocutory application filed 25 October 2024. 20 Should Mr Aardoom not have accepted that outcome, I would have ordered that the portions objected to, and which are highlighted in the copy of the defence attached to the proposed short minutes of order, be struck out for the reasons given above. 21 On that basis, and because the acceptance of the position that an amended defence could be prepared came only during submissions, I make the order sought by the plaintiff as to the costs of the interlocutory application.

Costs - first defendant and Mr McAuliffe 22 In support of the cost orders set out above the plaintiff read two affidavits of Mr Catchpoole, each affirmed on 9 December 2024. The first affidavit (and exhibit MRC-19), sets out the conduct of Mr McAuliffe complained of in relation to costs thrown away, which are sought on the indemnity basis, and to be determined by way of a lump sum. The second affidavit is a cost summary, which it is submitted conforms with this Court's practice note GPN-COSTS. 23 The plaintiff notes that it has only had dealings with Mr McAuliffe in relation to the first defendant in these proceedings. He is the largest, but not the sole shareholder of the first defendant (see transcript 15 November 2024 at p 11 - p 53 of CB). 24 Mr McAuliffe has relied on matters falling from Lee J in earlier case management proceedings, where his Honour indicated that he should seek pro bono assistance. In doing so, Mr McAuliffe says he has identified "a number of other potential interlocutory applications", such as a derivative action against the current directors of the plaintiff, and a "substantial cross-claim". Those claims were notified to the plaintiff as being claims, not of the first defendant but of Mr McAuliffe personally (see paragraphs 11 and 12 of Mr Catchpoole's first affidavit) and they were intended to be filed in late October 2024. They have not been filed in this Court. 25 In an interlocutory hearing on 15 November 2024, Mr McAuliffe noted that he might file those proceedings in the Supreme Court of Queensland. Lee J made it clear to both Mr Aardoom and Mr McAuliffe on 13 June 2024, that: A corporation can only appear in this court by a lawyer, and in the event that they seek relief from the rules, they need to make application. … [t]hat has to be fixed up, otherwise, I will entertain an application for judgment to be filed against the first defendant and the fourth defendant by the plaintiff. (paragraph 21 of Mr Catchpoole's first affidavit). 26 His Honour made notations that the parties had been informed of the necessity to take legal advice, and to regularise the position of the representation of the two companies. 27 The matter was then administratively transferred to my docket. 28 Despite the clear warning from Lee J, Mr McAuliffe did not immediately file any application. He did not appear on the case management hearing on 5 September 2024. On that day, I made orders providing for the plaintiff to file an application for default judgment against the first defendant, and a timetable, with a hearing of the interlocutory application on 18 October 2024. The application was served on the first defendant by email to Mr McAuliffe on 16 September 2024. The plaintiff served its submissions in support of the default judgment application on 1 October 2024, also by email to Mr McAuliffe. 29 On 24 September 2024, ASIC gave notice that it proposed to deregister the first defendant after two months. 30 The matter came before me on 18 October 2024 at 2.30 pm. The plaintiff had not heard from Mr McAuliffe between 10 July 2024 and 18 October 2024 at 1.24 pm, when Mr McAuliffe sent an email to my Associate and to the representatives of the plaintiff, attaching "a sealed copy of the affidavit of the first defendant". He noted that he had also filed "an Interlocutory application for self-representation" but had not yet received sealed copies. 31 The supporting affidavit did not mention the notice by ASIC of the proposal to deregister the first defendant, nor did Mr McAuliffe raise it in submissions on that day. 32 The late service of the application resulted in an adjournment, by which Mr McAuliffe accepted that a condition of which was that the costs of the plaintiff thrown away would be paid (see transcript of that day at p 5, lines 6 - 12). 33 The matter was stood over to 19 December 2024, at which time it became clear that the first defendant had been deregistered, and that the proceedings against the first defendant were accordingly abated. 34 The plaintiff submitted that Mr McAuliffe filed the leave application on 17 October 2024, after having known of the requirement to do so since 13 June 2024, and of the intention to seek default judgment since 13 July 2024, and in circumstances where he, as a director of the first defendant, must have known of the first defendant's forthcoming deregistration. 35 Mr Catchpoole says in his affidavit that his counsel indicated to me that the position of the plaintiff on the leave application was that: There's no prejudice which would not be capable of remedy by a costs order. 36 Mr Catchpoole says in paragraph 35 of his first affidavit that: If I had known about the proposed deregistration of JBL, I would have caused counsel to be instructed to strongly oppose any adjournment of the default judgment application to 19 December 2024. 37 Mr Catchpoole was not cross-examined, and I accept his evidence. Clearly, the imminent deregistration of the first defendant was a relevant matter when determining whether to instruct counsel to take a stand against the adjournment or not. Mr Hynes submitted on this hearing that: Where we have JBL seeking what is an indulgence from the court ... the failure to raise the ASIC notice was material in the extreme. 38 He noted that the intention was that the costs would be determined on 19 December 2024, at which time it was likely that the first defendant would have been, as it indeed was, deregistered. 39 The second affidavit of Mr Catchpoole is a costs summary, which it is submitted and I concur, complies with the requirements of GPN-COSTS in relation to a lump sum costs order. 40 There is no correspondence between ASIC and the first defendant or the directors of the first defendant, including Mr McAuliffe, going to the reasons for, or the directors knowledge or understanding of the deregistration in evidence, nor is there any evidence of Mr McAuliffe actually attempting to get the company re-registered, despite the assertions in oral submissions that that was underway. 41 Mr McAuliffe suggested that it lay on the plaintiff as a "person aggrieved" by the deregistration to reinstate the registration (see section 601AH (2)(a)(i)) but that is not to the point. 42 I accept the submission that Mr McAuliffe knew of the company's risk of deregistration. He admitted in submissions that he knew that was a possibility in March. It is not credible to say that he did not know, as at 18 October 2024, that the company had, in fact, been given notice of deregistration (despite making submissions that he was not aware of that fact). He did not raise the matter to this Court, and allowed the adjournment of the default judgment application, and the leave application, to a time when deregistration was likely to have then been actioned by ASIC. 43 It seems to me that the plaintiff's submission that it should have its costs thrown away paid by Mr McAuliffe is properly founded. I also agree that the costs should be assessed on the indemnity basis given the plaintiff's submission as to the "delinquent nature of the conduct at issue" - see Lowe v Mack Trucks Australia Pty Limited (No 2) [2008] FCA 711 at [7]. 44 The plaintiff also seeks that the Court dispense with the usual principle, that an interlocutory costs order not be taxed until the conclusion of the proceedings; FCR r 40.13. I take note of cl 4.1 of GPN-COSTS, and the Court's preference, where practical and appropriate to do so, is that a lump sum costs order is the preferable course of action. There is a general warning in the footnote to cl 4.1 about lump sum costs not applying generally to interlocutory costs orders, unless otherwise ordered. 45 A number of factors raised by the plaintiff - in particular the facts that Mr McAuliffe is not a party but has taken the running of the proceedings by correspondence and has done so in a way which has caused delay and prejudice - are relevant to the consideration of whether r 40.13 should be dispensed with. The plaintiff raises the fact that the costs incurred are more significant than they would have been, had the first defendant acted with competence and diligence, citing Watson v Criticos (Costs Payable Forthwith) [2022] FCA 4 at [7]. 46 Mr McAuliffe served an unsworn affidavit on the morning of the hearing, despite my orders that he file any evidence and submissions by 16 December 2024. The affidavit does not depose to any evidence; it was instead treated as a submission pursuant to s 136 of the Evidence Act 1995 (Cth). 47 In that submission, and in his oral submissions, Mr McAuliffe resisted the costs order sought saying "It's not enough to just say that I'm a director (Gardiner v FX Music Limited)" to ground a personal costs order. (The citation of that case appears to be Gardiner v FX Music Limited (2000) WL 33116500 (27 March 2000, unreported)). He also contended that: There is no scope to order a non-party costs order, unless or until a costs order has been made against the main defendant (Zanussi v Anglos-Venezuelan, an English case that is persuasive). (This is seemingly a reference to Zanussi v Anglos-Venezuelan Real Estate and Agricultural Development Limited Real Estate and Agricultural Development Limited [1996] EWCA Civ J0307-5). The principle contended for is clearly not the case under the Rules of this Court. 48 Mr McAuliffe did not deal with his acceptance of the plaintiff's entitlement costs after the adjournment of the hearing on 18 October 2024, and submitted that costs should follow the cause. He said in his oral submissions that he and his fellow director were unaware of the deregistration, given that they had paid the $49 fee outstanding (see transcript 6 February 2025 at p 29). He says that later, ASIC gave a reason for deregistration that the company needed a third director, which had not been flagged in any way in any correspondence (see the same transcript reference). Nor did Mr McAuliffe raise anything but the most general of objections to the issue of whether the costs should be a lump sum order or payable forthwith. 49 In the circumstances, and given the factors set out above, I am of the view that it is appropriate to dispense with the usual principles in relation to costs being payable forthwith. In the circumstances, and given the factors set out above, I am prepared to order that the costs thrown away of 18 October 2024: (a) be paid by Mr McAuliffe, on the indemnity basis; (b) be determined to be paid as a lump sum fixed in the sum of $14,297.40; and (c) be payable forthwith. 50 The costs of this application should also be paid by Mr McAuliffe, on a lump sum basis fixed in the sum of $6,870, payable forthwith.

Mr McAuliffe's interlocutory application to represent the first defendant without a solicitor 51 In Benjamin Hornigold Ltd v John Bridgeman Limited (No 2) at [26], I set out the principles relevant to an application for representation of a company by a third party enunciated by Dowling J in ACN 656 077 020 Pty Ltd v Li [2024] FCA 770 at [15], citing French J in Termi-Mesh Australia Pty Ltd v Josu Manufacturing Pty Ltd [1999] FCA 1241. 52 Mr McAuliffe is aware of my reasons for judgment. In his affidavit filed 18 October 2024, he does not deal with any but the broadest of brushes with questions of the financial position of the first defendant, the financial position of the directors or shareholders, the business of the first defendant, or the effect of the diversion of company funds to pay legal fees. He says only that he intends to right the company's finances by "derivative action". 53 In relation to the question of whether he has the requisite capacity to represent the company he says: I have extensive knowledge, and some tertiary postgraduate qualifications in law. I have self-represented several times, including in the Queensland Supreme Court. 54 However, he has not demonstrated that extensive knowledge in the conduct of these proceedings. He has ignored timetabling orders on a number of occasions, and twice before me has filed material on the evening or the day of hearings, despite having been ordered to provide material in advance. 55 I have dealt with the issue of the failure to inform the Court of the deregistration of the first defendant above. That is a serious failure on his part. He has, as noted above, cited English decisions which do not reflect the Rules of this Court, and has made allegations without evidence against the plaintiff, for example, designating the plaintiff's case as "falsehoods and abuses". 56 On one view, I may not need to determine whether Mr McAuliffe is an appropriate person to carry on the proceedings for the first defendant without the intervention of a solicitor, as the first defendant is currently deregistered, the company no longer exists (see s 601AD(1) of the Corporations Act) and so the proceedings against it have abated. 57 However, I have formed the view that the application for Mr McAuliffe would not succeed in any event, and will make the orders to dismiss the interlocutory application with costs on the ordinary basis, as agreed or taxed. I certify that the preceding fifty-seven (57) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Needham.

SCHEDULE OF PARTIES NSD 967 of 2023 Defendants Fourth Defendant: JB MARKETS LIMITED