EPAS Ltd v James & Ors

Corrs Chambers Westgarth Lawyers for the respondents

[1] Wilson J: The eighth defendant seeks orders restraining the solicitors and counsel who act for the plaintiff in proceeding S3544 of 2000 from continuing to do so. The applications are founded on the inherent jurisdiction of the Court to control its own officers so as to ensure the due administration of justice and the integrity of the judicial process.[1]

[2] The plaintiff EPAS Limited ("EPAS") and Trust Company Superannuation Services Limited ("TCSSL") were successively the trustees of The Employees Productivity Award Superannuation Fund. The first to fifth defendants were directors of EPAS and the sixth defendants were its auditors. The applicant eighth defendant ("AMP") issued two policies of insurance to the plaintiff providing cover against the trustee's liability and against losses for which the trustee was responsible.

[3] EPAS as trustee made various investments which resulted in loss and damage to the trust. It acknowledges that it did so in breach of trust, negligently and in breach of duties under the Superannuation Industry (Supervision) Act 1993 (Cth).[2] It acknowledges that it is liable to TCSSL and the beneficiaries to make good the losses suffered by the trust.[3] It makes claims against the directors and auditors who caused or contributed to those losses. It claims against AMP pursuant to the two policies.

[4] The proceeding was commenced in 2000. At the same time another proceeding relating to the same losses was commenced by TCSSL as the plaintiff (S3543/2000). In that other proceeding, EPAS was named as the seventh defendant.

[5] ASIC caused both proceedings to be instituted in exercise of power under s 50 of the Australian Securities and Investments Commission Act 1989 (Cth) ("the Act"). At the time the proceedings were commenced, EPAS was controlled by three directors (the first and third defendants and one K E James), one of whom (the first defendant) filed a notice of intention to defend and defence on its behalf in the TCSSL proceeding (S3543/2000).

[6] EPAS remains a registered company, but its directors have all resigned, and its shareholders have not appointed anyone in their stead. It is not actively defending the TCSSL proceeding.

[7] As I have said, the applicant invokes the Court's inherent jurisdiction to control the conduct of solicitors and counsel (who are its officers). The same solicitors and counsel act for EPAS as plaintiff in S3544/2000 and for TCSSL as plaintiff in S3543/2000 (where EPAS is the seventh defendant). AMP submits that this leads to two concerns -

(a) that the lawyers cannot consistently with their fiduciary duty of loyalty act against their client in the same matter or a closely related matter;

(b) that a fair-minded reasonably informed member of the public would conclude that the proper administration of justice requires that the lawyers be restrained from acting for EPAS in S3544/2000.

[8] AMP submits that these concerns are illustrated by -

(a) EPAS as plaintiff having pleaded its own liability as trustee when there were good arguable defences available to it in clauses 27 of the original trust deed and 24.1 of the amended trust deed;[4]

(b) EPAS having pleaded its own breaches of duties under the Superannuation Industry (Supervision) Act when there was a good arguable defence open to it that it was not liable to TCSSL because TCSSL was not the party who suffered the loss and damage;[5]

(c) its not being represented in a way which permits its interest to be considered objectively in isolation from those of TCSSL.

[9] AMP has a pecuniary interest sufficient to give it standing to bring these applications.[6]

[10] Under the Act ASIC had powers of investigation where it had reason to suspect contraventions of the corporations legislation or other legislation concerning the management or affairs of a body corporate or managed investments scheme or involving fraud or dishonesty and relating to a body corporate or managed investment scheme or financial products.[7] It might require persons to attend for examination.[8] Where as the result of an investigation or from a record of an examination it appeared to it that a person might have committed an offence against the corporations legislation and ought to be prosecuted, ASIC might cause a prosecution to be begun and carried on.[9] Section 50 empowered ASIC to cause a civil proceeding to be begun and carried on. It provided:

"SECTION 50 COMMISSION MAY CAUSE CIVIL PROCEEDING TO BE BEGUN

50. Where, as a result of an investigation or from a record of an examination, it appears to the Commission to be in the public interest for a person to begin and carry on a federal proceeding for:

(a) the recovery of damages for fraud, negligence, default, breach of duty, or other misconduct, committed in connection with a matter to which the investigation or examination related; or

(b) recovery of property of the person;

the Commission:

(c) if the person is a company - may cause; or

(d) otherwise - may, with the person's written consent, cause;

such a proceeding to be begun and carried on in the person's name."

Under s 50 ASIC had an extremely wide discretion to determine where the public interest lay.[10] The section was remedial in character. As Lockhart J observed in Somerville v ASC,[11] one of its evident functions was to permit ASIC, acting in the public interest, to cause proceedings to be taken where persons or corporations had suffered loss or harm arising from fraud, negligence or misconduct, but did not have the resources to maintain expensive and complicated litigation. Somerville itself was an example of that. It would also have permitted ASIC, acting in the public interest, to cause proceedings to be brought by a corporate plaintiff whose directors (whether or not the same directors as those in office at the time of the events in question in the proposed litigation) did not cause the company to so litigate (e.g. ASC v Deloitte Touche Tohmatsu[12]). The section did not create a new cause of action. A proceeding commenced under it is one to enforce a cause of action available under the general law (common law, equity, statute). The fruits of the litigation belong to the plaintiff, not to ASIC.

[11] It is clearly against AMP's commercial interest for the proceeding to be conducted in such a way that EPAS falls on its sword. But that is not the issue. The issue is whether it is contrary to the due administration of justice and the integrity of the judicial process for the same solicitors and counsel to act for EPAS in S3544/2000 and against it in S3543/2000.

[12] EPAS was a trustee. It has a continuing duty to restore the trust fund, and if it is successful in the litigation, it will hold the proceeds of the litigation on behalf of the trust (i.e. on behalf of the beneficiaries). There is no inherent vice in a corporate trustee acknowledging its own wrongdoing and then seeking to recover losses from delinquent directors and auditors who caused or contributed to the losses. On the contrary, it is in the public interest that proceedings of that type be brought.

[13] It has not been shown that the possible defences adverted to by AMP have not been considered by those conducting the litigation. Further they are raised in defence to the claims against the eighth defendant.[13] If indeed EPAS has no liability to make good the losses, it is likely that that will afford a defence to the eighth defendant.

[14] More than six years have passed since the proceedings were instituted. At the time they were instituted the plaintiff's cases were being conducted by solicitors and counsel in the office of ASIC; the present solicitors and counsel commenced to act about a year ago. There has been no explanation proffered for the delay in bringing these applications. It is clear that the present solicitors and counsel have done much work on behalf of the plaintiffs in the last year. On the other hand the action is a long way from trial and so it is unlikely that any irreparable harm would be done to EPAS if the legal practitioners were restrained from acting.

[15] In all the circumstances, I am unpersuaded that it would be contrary to the due administration of justice and the integrity of the judicial process for the solicitors and counsel to continue to act for EPAS.

[16] A procedural point was taken as to whether these applications were properly brought against the legal practitioners in proceeding S3544/2000, when they are not parties to that proceeding. While the applications could have been brought by the institution of a fresh proceeding, there was nothing improper or invalid about the way in which they were brought.

[1] Geelong School Supplies Pty Ltd v Dean [2006] FCA 1404; Grimwade v Meagher [1995] VicRp 28; [1995] 1 VR 446; Kallinicos v Hunt [2005] NSWSC 1181; (2005) 64 NSWLR 561; Spincode Pty Ltd v Look Software Pty Ltd [2001] VSCA 248; (2001) 4 VR 501.

[2] Further Amended Statement of Claim (filed 23 December 2003; court document 54), [56], [61], [104], [108], [141], [145], [184], [217], [256], [298], [343], [388], [392].

[3] Further Amended Statement of Claim (filed 23 December 2003; court document 54), [63.9], [106.2], [109.7], [143.1], [146.1], [186.8], [221.1], [222.2], [258.1], [300.7], [345.2], [390.2], [393.8].

[4] Clause 27 of the original trust deed provided that the trustee would not be liable for any act or omission other than an act or omissions involving fraud, wilful misconduct, wilful neglect or wilful default; clause 24.1 of the amended trust deed provided that the trustee, and each director of a corporate trustee, would not be liable for any act or omissions other than those that were dishonest or attributable to an intentional or reckless failure to exercise the degree of care and diligence required of a trustee. See Further Amended Defence of the Eighth Defendant (filed 18 October 2006; court document 76), [2A].

[5] see Superannuation Industry (Supervision) Act 1993 (Cth), s 55(3).

[6] see Onus v Alcoa [1981] HCA 50; (1981) 149 CLR 27.

[7] see s 13.

[8] see s 19.

[9] see s 49(2).

[10] See ASC v Deloitte Touche Tohmatsu (1996) 70 FCR 93, 121-123.

[11] (1995) 60 FCR 319, 324-325.

[13] See Further Amended Defence of the Eighth Defendant (filed 18 October 2006; court document 76), [2A], [88]; Reply to the Further Amended Defence of the Eighth Defendant (filed 14 February 2007; court document 82), [2], [8].