Supreme Court of WA|2003-09-23

Durban Roodepoort Deep, Limited v Mark David Reilly and Glenn Robert Featherby (the Administrators of the Deed of Company Arrangement of Laverton Gold Nl (subject to Deed of Company Arrangement)) [2003] WASC 232 (23 September 2003)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : DURBAN ROODEPOORT DEEP, LIMITED -v- MARK DAVID REILLY and GLENN ROBERT FEATHERBY (the Administrators of the Deed of Company Arrangement of Laverton Gold NL (subject to Deed of Company Arrangement))

BETWEEN : DURBAN ROODEPOORT DEEP, LIMITED (ARBN 086 277 616)

MARK DAVID REILLY and GLENN ROBERT FEATHERBY (the Administrators of the Deed of Company Arrangement of Laverton Gold NL (subject to Deed of Company Arrangement))

Corporations Act - Application to be joined as parties to the action - Turns on own facts

Rules of the Supreme Court, O 18 r 6, O 81G r 21(3)

Aborel Nominees Pty Ltd v Horsburgh (1986) 11 ACLR 138

Australian Tape Manufacturers Association Ltd v The Commonwealth [1990] HCA 530

Cambridge Credit Corp Ltd v Parkes Developments Pty Ltd [1974] 2 NSWLR 590

FAI General Insurance Co Ltd v Interchase Corporation Ltd (1999) 10 ANZ Ins Case 61-428

Jones v Brien & Anor (1995) 13 ACLC 99

Morrell v Mercantile Mutual Insurance (Aust) Ltd & Ors [1999] WASCA 250

National Companies and Securities Commission v Monsoon Nominees Pty Ltd (1990) ACSR 491

News Ltd v Australian Rugby Football League Ltd (1996) FCR 410

Pegang Mining Co Ltd v Choong Sam (1969) 2 MLJ 52

Qantas Airways Ltd v A F Little Pty Ltd [1981] 2 NSWLR 34

Re Magic Australia Pty Ltd (In Liq) (1992) 7 ACSR 742

Re Patrick Corp Ltd and the Companies Act [1981] 2 NSWLR 328

Re Taylor [1934] NZLR 117

Rogala & Anor v Caris Corporation Ltd & Anor, unreported; SCt of WA; Library No 5089; 27 September 1983

Sydney Land Corporation Pty Ltd v Kalon Pty Ltd (Under Deed of Company Arrangement) (1998) 16 ACLC 93

Tanning Research Laboratories Inc v O'Brien [1990] HCA 8; (1991) 169 CLR 332

Vendervell Trustees Ltd v White [1971] AC 912

Westpac v Totterdell (1998) 20 WAR 150

1 MASTER SANDERSON: In each action there were two applications: the first by Laverton Gold NL ("Laverton") and the second by Mr John Stratton ("Stratton"), each applying to be joined as a defendant. All applications were opposed by the plaintiffs. At the conclusion of argument, I indicated that I would make orders as sought by the applicants and I would publish reasons for doing so at a later date. These are those reasons.

2 Stratton is a director of Laverton. Although his applications were put on a slightly different basis from the applications of Laverton, the essential substratum of the applications was the same. I will deal generally with all applications and simply refer throughout these reasons to the applicants.

3 The applications are brought under O 81G r 21(3) of the Rules of the Supreme Court. That rule allows the Court to add as a defendant to proceedings a person who is, or claims to be, a creditor, contributory or officer of a corporation. Once an applicant has established that it has standing under O 81G r 21(3), the Court has a discretion as to whether or not it will add the applicant as a party. In exercising that discretion, the Court should have regard to what is required by the interests of justice: see Australian Consolidated Investments Ltd v Woodings (1996) 16 WAR 388 at 391 - 393. Without in any way attempting to define the considerations relevant to the exercise of the discretion, there are at least four matters that should be taken into account. They are: (a) the interests of the parties to the main application; (b) the legal and commercial interests of the applicant; (c) the public interest in the proper administration of the justice system; and (d) whether there is a proper contradictor in the application to which the applicant wishes to be joined so that all the issues that ought to be raised in the application will be raised.

4 Further, as Owen J makes clear in the Woodings (supra) decision, the Court is entitled to take into account the principles underlying O 18 r 6 of the rules. Again, without wishing to be prescriptive, the matters which are to be taken into account in determining an application under O 18 r 6 include: (a) determining whether a party should be joined to the action to prevent the injustice of his or her rights being affected by the judgment without the party having the right to be heard in the proceedings; (b) a person ought be joined as a party if any order which might be made in the proceedings would directly affect that person's rights against or liabilities to a party to the action; (c) there may be a joinder of a party when his or her association with the defendant is an essential ingredient in the plaintiff's claim; (d) a party will be joined when it is necessary to allow all questions between the original parties to be effectively and completely disposed of; (e) a person may be added as a party if the legality of his or her conduct is in issue between the existing parties; and (f) O 18 r 6(2) is wide enough to encompass modern notions of case management and the desire of the justice system to minimise time and costs in litigation.

5 These principles emerge from a number of cases, most importantly, the decision of the Full Court in Homestyle Pty Ltd v City of Belmont [1999] WASCA 59 and the decision of Owen J in Woodings (As Receiver and Manager of Elcos Australia Pty Ltd (In Liq)) v Stevenson and Jefferson (As liquidators of Elcos Australia Pty Ltd (In Liq)) [2001] WASC 174; (2001) 24 WAR 221.

6 The background facts can be summarised succinctly. On 18 September 2002, the defendants were appointed as administrators of Laverton pursuant to s 436A of the Corporations Act 2001 (Cth). At the second meeting of creditors of Laverton on 15 October 2002, the creditors of Laverton resolved that Laverton would execute a Deed of Company Arrangement ("DOCA"). The DOCA was executed on 31 October 2002. On 25 November 2002, the plaintiff sent a formal proof of debt to the administrators. On 4 December 2002, the administrators rejected that proof of debt. On 20 December 2002, the plaintiff brought an application to set aside the administrators' decision to reject the proof of debt. On 22 January 2003, the plaintiff brought an application pursuant to s 445D(1) and s 447A(1) of the Act for orders that the DOCA be terminated, or, alternatively, that Laverton be wound up.

7 The plaintiff alleges that the administrators' reasons for rejecting the proof of debt are untenable and that, in the event the plaintiff's appeal against the administrators' decision is successful, and the plaintiff's claim is allowed in full, that, in itself, will be sufficient to warrant an order being made to set aside the DOCA. Further, the plaintiff alleges that it is a creditor of Laverton as set out in the proof of debt and for that reason the DOCA should be set aside. Further, the plaintiff alleges that the DOCA unfairly discriminates against it. It is also said that directors of Laverton, including Stratton, have engaged in contraventions of Corporations Act and have allowed Laverton to incur debts while insolvent. Finally, it is said that it is against the public interest for Laverton to effect the discharge of Laverton's liability to the plaintiff and for the directors to retain control of the company.

8 The amount claimed by the plaintiff from Laverton is something over A$7,000,000. For present purposes, it is unnecessary to go into detail as to how this alleged debt was incurred. It is sufficient if I say that allegations are made by the plaintiff against Stratton and another individual that they breached statutory and fiduciary duties when they were directors of the plaintiff. It is said that Laverton was knowingly concerned in the breach of these duties and is liable to account to the plaintiff for certain profits.

9 It will be seen from all of the above that, in determining whether to overrule the administrators' decision to reject the proof debt, the Court will be required to determine whether the plaintiff's claim against Laverton is legally enforceable. To decide that question, it will be necessary to determine whether Laverton was involved in contraventions of the Corporations Act. It will also be necessary to decide whether Stratton breached his duties under the Corporations Act, or his fiduciary duties, either to Laverton or the plaintiff. The fact that there must then be some assessment of Stratton's conduct means, in my view, that he should properly be a party to the proceedings. Further, Laverton has a commercial interest in the proceedings, since it is alleged that it is liable to the plaintiff for a very substantial sum of money. It should have the right to be heard on this question.

10 There is a further issue in this case and that concerns who is the proper contradictor to the plaintiff's application. It is clear that the administrators are not in a position to defend the complex allegations made against Laverton. It is unlikely the administrators will be able to raise all necessary issues and matters which are known to and which may be raised by Laverton. In my view, it is important that all these matters be put before the Court in what is likely to be a complex case.

11 For these reasons, I concluded that the applicants should be joined as parties to the proceedings. I made orders accordingly.

Durban Roodepoort Deep, Limited v Mark David Reilly and Glenn Robert Featherby

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Judgment (39 paragraphs)

Durban Roodepoort Deep, Limited v Mark David Reilly and Glenn Robert Featherby (the Administrators of the Deed of Company Arrangement of Laverton Gold Nl (subject to Deed of Company Arrangement)) [2003] WASC 232 (23 September 2003)

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Cases Cited (5)