[2010] FCAFC 125
Clough and Rogers v Frog (1974) 4 ALR 615
Source
Original judgment source is linked above.
Catchwords
[1996] HCA 25
Burrell v The Queen (2008) 238 CLR 218[2008] HCA 34
CA & CA Ballan Pty Ltd v Oliver Hume (Australia) Pty Ltd [2017] VSCA 11
Caason Investments Pty Ltd v Cao (2015) 236 FCR 322[2015] FCAFC 94
Canberra Residential Developments Pty Ltd v Brendas (2010) 273 ALR 601[2010] FCAFC 125
Clough and Rogers v Frog (1974) 4 ALR 615[1949] HCA 1
Donellan v Watson (1990) 21 NSWLR 335
Foss v Harbottle (1843) 2 Hare 46167 ER 189
Galati v Deans [2018] NSWSC 1600
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125[1964] HCA 69
Hans Pet Constructions Pty Limited v Cassar [2009] NSWCA 230
Harvey v Phillips (1956) 95 CLR 235[2010] HCA 19
Johnson v Gore Wood & Co [2002] 2 AC 1
Leotta v Public Transport Commission (NSW) (1976) 9 ALR 43750 ALJR 666
Masters v Cameron (1954) 91 CLR 353[1990] HCA 32
Owners Strata Plan No 57164 v Yau (2017) 355 ALR 571[2017] NSWCA 341
Research in Motion Ltd v Samsung Electronics Australia Pty Ltd (2009) 176 FCR 66[2009] FCA 320
Royal British Bank v Turquand (1855) 5 El & Bl 248[2012] NSWSC 1327
Wentworth v Rogers (No 5) (1986) 6 NSWLR 534
Weston v Publishing and Broadcasting Ltd (2012) 88 ACSR 80
Judgment (16 paragraphs)
[1]
Background
Some of the background to the present dispute is outlined in a judgment that I published not so long ago on an unsuccessful application by the tenth cross-defendant (EJC Pyrmont Pty Ltd) (which is not affected by the current application) for security for costs of the cross-claim to be provided by the second cross-claimant, Fishbank Development Corporation Pty Ltd (FDC), the second defendant in the proceedings (see Galati v Deans [2018] NSWSC 1600). However, it will be necessary to add something briefly by way of further background in order to explain the dispute between the plaintiffs and the existing defendants and the basis on which the plaintiffs now wish to join an array of other defendants to the proceedings. I make clear at the outset that I am not here making any findings of fact in relation to the substantive dispute. I am simply recording the background as asserted in the submissions and evidence put before me on the hearing of the present amendment application.
[2]
The relevant parties
The plaintiffs, as already noted, are Mr Dominic Galati and a company he controls, TA. In essence, Mr Galati claims that he and the first defendant, Mr Robert Deans are or were business partners or partners to a joint venture and that, through that partnership or joint venture, he (Mr Galati) and/or his company (TA) has an entitlement or interest in a parcel of shares said to be worth some $100 million, the control (and attempted sale) of which has wrongfully been assumed by Mr Deans (see the plaintiffs' submissions at [1]). Mr Doyle Gray of Counsel appeared with Mr Butt for the plaintiffs on the amendment application.
There are presently three defendants to the proceedings. The first defendant is Mr Deans. From about 2001, Mr Deans was involved in a project for the proposed redevelopment of the Sydney Fish Market at Blackwattle Bay. The second defendant, FDC, is a company controlled by Mr Deans which was also involved in the project for that proposed redevelopment. The third defendant, TRHS Pty Ltd (TRHS), is a company that is or was the registered owner of the shares in the proposed fourth defendant, Felan's Fisheries Pty Ltd (Felan's). The plaintiffs allege that TRHS held those shares (the Felan's shares) as nominee of and on trust for the plaintiffs (as to 50%) and the first and second defendants (as to 50%) (see [28]; [40] of the proposed amended statement of claim; T 11.8). The three existing defendants were represented at the hearing of the present application by Mr Barham of Counsel.
As to the proposed additional defendants, the first is the proposed fourth defendant (Felan's), to which I have already referred. As at 2015, Felan's owned a parcel of some 1.875 million shares in the proposed seventh defendant, SFM Tenants and Merchants Pty Ltd (a company referred to by the parties on this application, and in these reasons, as "Buyers"). This is the parcel of shares to which I have referred at [10] above. There is a dispute as to the value of that parcel of shares (which is a minority shareholding). I was taken in the course of argument to valuation evidence which puts the value of that shareholding at substantially less than $100 million (see the valuations by Acumen Accounting and Advisory, William Buck Corporate Advisory Services, and PricewaterhouseCoopers - at pp 111, 125, 288 of Exhibit RD-8 to the affidavit of Robert Paton Deans sworn 13 August 2018 (Exhibit 1 on the amendment application)) but Mr Doyle Gray points to correspondence by Mr Deans in which that higher value is attributed to the shares (see Annexure C to the affidavit of David Jonathan Glinatsis, the plaintiffs' solicitor, sworn 25 May 2018 - Mr Glinatsis' first affidavit). (Counsel for Mr Deans, Mr Barham, appeared to suggest this was in the context of Mr Deans "spruiking the shares" - see T 32.26; but in any event it suffices to note that there is more than one expert valuation that would not on its face support Mr Galati's assertion that his entitlement or interest in the shares is anywhere near $100 million.) Felan's was not represented, and did not seek leave to appear, at the hearing of the plaintiffs' amendment application.
Leaving aside, for the moment, the proposed fifth defendant and focussing on the relevant corporate relationships, the proposed sixth defendant is Sydney Fish Market Pty Ltd (SFM). SFM has two shareholders: NSW Fishermen's Holding Company Pty Ltd (referred to by the parties on this application as "Catchers" and not involved in the proceedings) and Buyers. Each of Catchers and Buyers owns one ordinary share in SFM (see SFM's submissions at [6]; proposed amended statement of claim at [12]). SFM is the entity which operates the seafood market known as the Sydney Fish Market on a site at Blackwattle Bay (this being the subject of the proposed redevelopment proposal). On the hearing of the plaintiffs' amendment application, Mr Hewitt of Counsel appeared, by leave, for SFM.
The proposed seventh defendant, as noted above, is the entity referred to as Buyers. On the hearing of the plaintiffs' amendment application, Mr Ng of Counsel appeared, by leave, for Buyers.
The proposed eighth to seventeenth defendants are persons identified in submissions as the "director defendants" (being directors of SFM). They, together with the first defendant and the proposed fourth, sixth, seventh and eighteenth defendants, are parties to a deed of settlement dated 9 November 2017 concerning the 2015 Proceedings (see [6A] of the proposed amended statement of claim) (the Deed of Settlement) (a copy of which is Annexure B to Mr Glinatsis' first affidavit at 26). It seems that there were allegations in the 2015 Proceedings of breaches of duty by SFM's directors. Although I was informed that the director defendants were not parties to the 2015 Proceedings (see T 31.25), review of the Court file indicates that the Statement of Claim filed in those proceedings on 17 February 2016 did name all of the director defendants as defendants to the 2015 Proceedings (a copy of that pleading appears in draft at Ex 1, 5-49). This also seems to be the case by reference to a judgment of Black J in the 2015 Proceedings: In the matter of Felan's Fisheries Pty Limited [2017] NSWSC 1502. There may be some explanation for this apparent disconformity in the position as it was explained in submissions on the present application. Nothing ultimately turns on this. On the hearing of the plaintiffs' amendment application, Mr Kidd of Senior Counsel appeared, by leave, for the eighth to seventeenth defendants.
The proposed eighteenth defendant (Mr Gregory Imisides) is also a party to the Deed of Settlement. He was not represented, and did not seek leave to appear, at the hearing of the plaintiffs' amendment application.
The proposed nineteenth defendant (Mr Thanh-Chi Pho) was (and the plaintiffs maintain still is) a director of Felan's, having been nominated as such by Mr Galati. The plaintiffs complain as to the removal (they say the "purported" removal) of Mr Pho as a director of Felan's. Mr Pho was not represented, and did not seek leave to appear, at the hearing of the plaintiffs' amendment application. The plaintiffs did, however, rely upon an affidavit from Mr Pho on the hearing of the application which suggests that he is prepared to give evidence in the proceedings. The plaintiffs maintain that Mr Pho is a necessary party to be joined as he is a person affected by the orders sought (T 16.38), though no relief is sought against him. It is said that he is affected because the plaintiffs are seeking declarations that he was continuously a director of Felan's and that, if those declarations are made, the ASIC register would need to be corrected by him (see T 17.33ff). Mr Pho has not, however, at this stage made any challenge himself in respect of his removal (or purported removal) as director.
Finally, going back to the proposed fifth defendant, he is Mr Sebastian Stevens, an accountant and partner of BDO Sydney who was appointed under an irrevocable power of attorney to effect the sale of the parcel of 1.875 million shares in Buyers in respect of which the plaintiffs claim an entitlement or interest. On the hearing of the plaintiffs' amendment application, Mr Bulley of Counsel appeared by leave for Mr Stevens. Mr Stevens, too, is simply sought to be joined as a necessary party. Although it is pleaded at [6A] of the proposed amended statement of claim that Mr Stevens was also party to the Deed of Settlement, the copy of the Deed of Settlement in evidence does not identify him as a party and his Counsel, Mr Bulley, argued that the pleading was factually incorrect in this regard, a position which Mr Doyle Gray for the plaintiffs appeared to accept (see T 64.12ff, 73.6). There is no relief sought against Mr Stevens as such (though I note that the application for injunctive relief does seek orders against him in his capacity as holder of the power of attorney - he being the person currently progressing the sale of the relevant shares).
[3]
The existing statement of claim
The dispute between the plaintiffs and the existing defendants (i.e, Mr Deans, FDC and TRHS), as already noted, arises out of proposals that were being considered and progressed for some time in relation to the redevelopment of the Sydney Fish Market. As presently pleaded, there is an allegation in the statement of claim that, between 2013 and 2015, Mr Galati and TA on the one hand and Mr Deans and FDC on the other hand "worked together, and separately, on the formulation of potential plans for the redevelopment" (see [8]) and that this work included identifying and introducing potential investors or purchasers for various aspects of the redevelopment proposal ([9]).
The existing pleading then proceeds to allege various matters as to: Felan's and its shareholding in Buyers ([10]-[11]); Buyers' 50% shareholding in SFM and SFM's position as the manager and operator of the Sydney Fish Market ([12]-[13]); the entry by FDC and TA (as the designated buyer) into, and terms of, a call option and share sale agreement in respect of all of the shares in Felan's ([14]- [18]) (the Share Option Agreement) and a corresponding option agreement in relation to a parcel of land in the vicinity of the Sydney Fish Market ([19]-[20]); and the ultimate exercise of the respective options pursuant to which, inter alia, TRHS was the entity nominated to exercise the Share Option Agreement and to purchase and hold all the shares in Felan's on trust as to 50% for TA and as to the remaining 50% for FDC (see [21]-[33]).
It is alleged (at [28]) that there was an agreement between the plaintiffs, on the one hand, and Mr Deans and FDC, on the other, which included agreement that a nominee of the plaintiffs and of Mr Deans and FDC would purchase and hold the shares in Felan's on trust as to 50% for each of TA and FDC.
Paragraphs [34]-[39] of the existing pleading then allege various events subsequent to the date of exercise of the said options, including (at [35]) the appointment by Mr Galati and Mr Deans, respectively, of nominated "appointee" directors to Felan's. Mr Pho (the proposed nineteenth defendant) is said to have been Mr Galati's appointee director. Mr David Turner, who is not a party to the proceedings, is said to have been Mr Deans' appointee director.
At [38], it is alleged that TRHS was the registered but not beneficial owner of all the shares in Felan's; and, at [40], that TRHS held all of the shares in Felan's of which it became or was the registered owner at all material times on and after 20 November 2015, on trust as to 50% for TA and as to 50% for FDC.
[4]
The 2015 Proceedings
Before turning to the proposed amendments to the existing pleading, it is relevant to refer here to the 2015 Proceedings, the background to which is set out in the submissions filed for SFM on the present application (see [10]-[15]) and does not relevantly appear to be in dispute.
The 2015 Proceedings concerned a month to month lease and licence that had been granted to Felan's by SFM over parts of the Sydney Fish Market site. On 21 April 2015, the board of SFM resolved to issue notices to quit to Felan's. On 22 April 2015 SFM served the notices to quit on Felan's in respect of the Felan's lease and licence.
Under the articles of association of Buyers, the termination of Felan's lease at the Sydney Fish Market site triggered a mechanism for the sale of Felan's shares in Buyers (see the affidavit of Timothy John Webster, SFM's solicitor, sworn 26 October 2018 in opposition to the amendment application, at [13]).
On 16 December 2015, Felan's commenced the 2015 Proceedings against SFM (and, it seems, its directors), among other things challenging the validity of the notices to quit issued by SFM as well as various actions taken by the directors of SFM in relation to the Felan's premises which were alleged to have been breaches of their duties as directors of SFM. The solicitor on the record for Felan's throughout the 2015 Proceedings was Mark Fraser of Fraser Clancy Lawyers (see Mr Webster's affidavit at [6]). There is evidence to show that Mr Galati and his then legal advisers were aware of the 2015 Proceedings (see in this regard the correspondence contained in Ex 1, referred to in oral submissions by Mr Barham from T 28ff; and Ex 6D-1, being a letter dated 8 December 2015 from Mr Pho to Mr Fraser). Mr Galati's own evidence is that, from 2015 to about 19 January 2017, he was aware of the 2015 Proceedings and, along with Mr Deans, was giving instructions to Mr Fraser (see his affidavit affirmed 28 June 2018 at [1]-[2]).
The trial of the 2015 Proceedings was listed for hearing for three weeks to commence before Black J on 3 November 2017 (see In the matter of Felan's Fisheries Pty Limited at [1]). Shortly before the commencement of that hearing, and following a mediation at which Felan's was represented by Mr Fraser, a settlement of the dispute was reached and the hearing dates were vacated.
A Deed of Settlement dated 9 November 2017 (the Deed of Settlement) (a copy of which appears at Annexure B to Mr Glinatsis' first affidavit), in respect of which a confidentiality order has been made, was entered into by the parties to the 2015 Proceedings and others. The recitals to the Deed of Settlement include (recital B) that Mr Deans is the sole director and secretary of Felan's. Mr Webster (SFM's solicitor) has deposed (see [7] of his affidavit) that during the course of the 2015 Proceedings he caused various ASIC company searches of Felan's to be carried out, including one on 4 May 2016 which disclosed that Mr Deans became the sole director and company secretary of Felan's on 1 April 2016. (He does not, relevantly, depose to having become aware of the provisions of the articles of association of Felan's.)
[5]
Proposed amended pleading
The proposed amended statement of claim, for which leave is now sought, makes wholesale deletions of much of the existing pleading and recasts the relief that is sought.
[6]
Existing Claim Amendments
In the proposed amended statement of claim, [8] and [9] of the existing pleading are to be wholly deleted and the time at which it is alleged (at [7]) that Mr Galati met Mr Deans is to be amended to a later date (namely in or about April 2014 as opposed to 2013). What is now sought to be alleged is that, in and from May 2014, the plaintiffs and Mr Deans and FDC became partners in a partnership ([8C]) or alternatively in a joint venture ([8D]) and commenced carrying on a business in common with a view of profit (namely, as set out at [8A], "to acquire an interest in the Sydney Fish Market, initiate, participate in, and profit from the Sydney Fish Market's redevelopment based upon a proposal known as Destination Blackwattle Bay").
What is then alleged, in summary, is that in and from May 2014, in carrying on the common business, Mr Deans and FDC owed fiduciary duties to Mr Galati and TA ([8E]) and that Mr Deans breached those duties ([40B]).
The agreement allegedly giving rise to the partnership (or joint venture) is pleaded at [8A] of the proposed amended statement of claim as follows:
In and subsequent to May 2014 following a series of conversations, the 1st plaintiff and the 1st defendant orally agreed to carry on a business in common with a view of profit, namely to acquire an interest in the Sydney Fish Market, initiate, participate in, and profit from the Sydney Fish Market's redevelopment based upon a proposal known as Destination Blackwattle Bay.
At [8B] of the proposed amended statement of claim it is alleged that it was a term of the May 2014 agreement that the parties to that business in common would be both plaintiffs and Mr Deans and FDC.
It is then alleged that the terms of the alleged partnership or joint venture were varied, first in or around April 2015 and then on 20 November 2015 - see [8F]-[8H] as follows:
8F In or around April 2015, the 1st and 2nd plaintiffs and the 1st and 2nd defendants varied the terms of their partnership, or alternatively varied the terms of their joint venture, in writing.
Particulars
Document titled "Agreement Principles between Robert Deans, Dominic Galati & Bhavani Ma."
8G On 20 November 2015, the 1st and 2nd plaintiffs and the 1st and 2nd defendants varied the terms of their partnership, or alternatively varied the terms of their joint venture, by using the 3rd defendant TRHS Pty Ltd as a vehicle for conducting at least part of their common business (20 November 2015 Variation).
8H The 20 November 2015 Variation included terms to the effect:
(a) when the 3rd defendant acquired property, such property would be a partnership asset or, in the alternative, an asset of the joint venture
(b) the 1st and 2nd plaintiffs and the 1st and 2nd defendants would at all times exercise control over the 3rd defendant, in a manner the precise terms of which were to be decided at a later date, and
(c) the 1st and 2nd plaintiffs and the 1st and 2nd defendants would at all times exercise control over the 3rd defendant's assets, in a manner the precise terms of which were to be decided at a later date.
[7]
New Claim Amendments
The New Claim Amendments introduce a whole new set of claims involving the proposed joinder of the various prospective additional defendants.
It is proposed that [41]-[52] of the existing pleading be wholly deleted (thus the existing allegations as to the wrongful changes to the directors and the failure to acknowledge TA's beneficial interest in the Felan's shares are to be deleted). In their place there is a series of allegations to the effect that: Mr Pho was not validly removed as a director of Felan's and remains a director of that company ([40A.1]-[40A.7]); Mr Hoban and Mr Turner were not validly removed as directors of Felan's and remain as directors of that company and Mr Deans was not appointed as a director ([40B.1]-[40B.2]); and that Mr Deans' conduct in relation to those matters was a breach of his fiduciary duty.
Then, at [40C.1]-[40C.4], what is alleged is that: Mr Deans purported to cause Felan's to settle the 2015 Proceedings; Mr Pho did not consent to the settlement; Mr Deans had neither actual nor ostensible authority to bind Felan's to any agreement; and there was no legally enforceable agreement to settle the 2015 Proceedings, either on the terms as proposed for by the Deed of Settlement or at all.
As already noted, what is now sought to be claimed by way of relief includes an order setting aside the orders in the 2015 Proceedings "insofar as they were made consequent upon the deed of settlement". Declarations are to be sought as to Mr Deans' breach of fiduciary duty in purporting to remove Mr Pho as director of Felan's and in purporting to settle the 2015 Proceedings; that Mr Pho was appointed a director of the company "and has continuously remained a director since"; that Mr Deans lacked authority to cause Felan's to settle the 2015 Proceedings; and that the Deed of Settlement is void and of nil effect insofar as it binds Felan's and the parties to the 2015 Proceedings inter se.
Mr Doyle Gray says that what follows from the alleged breach of fiduciary duty by Mr Deans is the relief to set aside the Deed of Settlement and Consent Order in the 2015 Proceedings, because they were "a perpetuation of a breach intended to deprive Mr Galati of his interest in the partnership" (T 12.40). If orders to undo the transactions and restore the property (i.e., the Buyers Shares) to Felan's were not to be able to be obtained, Mr Doyle Gray says the plaintiffs' alternative claim would be for equitable compensation (for breach of fiduciary duty) (see T 13.30) (though no such claim has presently been pleaded).
[8]
Relevant principles
As noted earlier, the plaintiffs' amendment application is made pursuant to s 64 of the Civil Procedure Act, which provides, relevantly, that:
(1) At any stage of proceedings, the court may order:
(a) that any document in the proceedings be amended, or
(b) that leave be granted to a party to amend any document in the proceedings.
(2) Subject to section 58, all necessary amendments are to be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings, correcting any defect or error in the proceedings and avoiding multiplicity of proceedings.
…
There was no dispute as to the relevant principles in relation to such an application. Leave to amend will generally be granted if the application is made in a timely manner and for a proper purpose (see Clough and Rogers v Frog (1974) 4 ALR 615 at 618; 48 ALJR 481; Horton v Jones (No 2) (1939) 39 SR (NSW) 305 at 309-310; Leotta v Public Transport Commission (NSW) (1976) 9 ALR 437 at 446-447; 50 ALJR 666; Commissioner for Railways v Bielewicz (1962) 63 SR (NSW) 466 at 468; Abela v Giew (1964) 81 WN (Pt 1) (NSW) 344 at 345; TCN Channel 9 Pty Ltd v Antoniadis (1998) 44 NSWLR 682 at 690-695; Commonwealth v McLean (1996) 41 NSWLR 389 at 396-397; see also Middleton v O'Neill (1943) 43 SR (NSW) 178 at 185).
Section 58 of the Civil Procedure Act, to which s 64(2) is expressly made subject, requires that the Court follow the dictates of justice in deciding whether to make any order or direction for the management of proceedings including any order for the amendment of a document. For the purposes of determining what the dictates of justice are in a particular case, the Court must have regard to ss 56 and 57. It is important to recognise that regard to both ss 56 and 57 of the Civil Procedure Act is "statutorily compulsory" (see Hans Pet Constructions Pty Limited v Cassar [2009] NSWCA 230 at [38] per Allsop ACJ (as his Honour then was), with whom Campbell and Young JJA agreed).
In Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 ("Aon"), French CJ (at [14]) noted the distinction between the discretion of a court to allow a party to amend its pleading on that party's motion and the requirement to make all such amendments as may be necessary to determine the real questions in controversy (the latter engaging with the authority conferred on the court to make amendments of its own motion).
[9]
Plaintiffs' submissions
At the outset, I note that there seems little doubt that there are strong feelings between the protagonists in the present dispute (Mr Galati on the one hand and Mr Deans on the other). Mr Doyle Gray made numerous references in oral submissions to Mr Deans as the perpetrator of wrongdoings against Mr Galati. He accuses Mr Deans of having caused Felan's (as plaintiff) to settle the 2015 Proceedings "on terms amounting to a total capitulation in favour of the defendants", including an agreement for the sale of the $100 million parcel of shares in Buyers "to a closed group of potential purchasers who each already had interests in the Sydney fish markets" for a "knockdown price" (plaintiffs' submissions at [6]). Mr Deans, in turn, has made serious allegations as to the receipt of a substantial secret commission by Mr Galati and/or TA (see the cross-claim filed by Mr Deans and FDC in the proceedings). However, emotive submissions as to the perpetuation of wrongdoing or fraud do not assist in, and are apt to distract from, the present task. Relevantly, what must here be taken into account are the factors relevant to the decision whether to grant leave to amend (as adverted to above).
In support of their amendment application the plaintiffs rely on affidavits by their current solicitor, Mr David Glinatsis, made on 25 May 2018, 28 June 2018, 26 October 2018, and 28 June 2018 as outlining the nature and scope of the issues, explaining the delay in bringing the application for leave to amend, and summarising the present evidence. Mr Glinatsis was first contacted by Mr Galati in late April 2018, some 16 months after the originating process had been filed (on 1 December 2016).
As to the question of delay, it is submitted (at [4]-[5]) that:
In 2016, Mr Galati and his related corporation commenced these proceedings with the benefit of different solicitors in an effort to secure Mr Galati's entitlement as a business partner. Before Mr Galati terminated their instructions, his previous solicitors had managed to draft a statement of claim which failed to articulate the real issues. The previous solicitors marshalled a single affidavit to support the claim, from Mr Galati himself, comprising a mere 4 pages of text with no annexures or exhibits despite the text referring to documents which were relevant.
In late April 2018, Mr Galati first contacted David Glinatsis, solicitor, who is the present solicitor for the plaintiffs. By April 2018, Mr Glinatsis agreed to take over conduct of the proceedings, and by May 2018 he recognised the need for significant amendments to be made to the pleadings articulating the determination of the real questions raised. He set about marshalling proper evidence.
[10]
Submissions by the existing and proposed additional defendants
The various defendants and proposed additional defendants all oppose the grant of leave. The first defendant relied on an affidavit sworn by him on 13 August 2018, which I read subject to relevance together with the exhibit thereto. SFM and the director defendants each read affidavits from their respective solicitors (an affidavit sworn 26 October 2018 of Timothy John Webster and an affidavit affirmed the same date of Matthew Carter Hending). As the submissions of the respective defendants and proposed additional defendants to some extent overlap, I will summarise them by reference to the two broad categories of amendments.
However, before turning to those two categories of amendments, I note that the first to third defendants take an overall position that, on case management grounds, the amendments should not be permitted at this stage of the proceedings. It is submitted (though I have my doubts about this having regard to the recent interlocutory stoush between the cross-claimant and the tenth cross-defendant and the consequent directions made in relation to the proposed re-pleading of the cross-claim) that the matter is on the cusp of being allocated a hearing date.
The first to third defendants emphasise that these proceedings were commenced on 1 December 2016; have now been on foot for close to two years; and that there have been numerous directions hearings in 2017 and 2018 where orders were made for the service of affidavits (including orders that the plaintiffs serve their evidence in chief by 4 December 2017, with their evidence to have been complete by early 2018) and where the plaintiffs pressed for the defendants' evidence to be filed within a relatively short compass. They say that they have now prepared their (voluminous) evidence in reply to that which had been served and complain that it is only now that the plaintiffs seek to raise issues which they maintain are not new issues but are issues which should have been raised before the completion of the evidence or in separate proceedings. It is submitted that the amendment of the pleadings at this stage (with a whole range of new parties and potential further interlocutory disputes over security for costs or the like) will take the proceedings in an entirely new direction and that this is a course which would be antithetical to the just, quick and cheap resolution of proceedings.
[11]
Existing Claim Amendments
I turn, first, to the Existing Claim Amendments, which relevantly affect only the existing defendants. Apart from the general complaint as to delay, the first to third defendants' complaint as to this category of amendment as to the adequacy of the proposed amended pleading.
So, for example, complaint is made that the allegation of an oral agreement in May 2014 (see [8A]) is pleaded in conclusory terms; the proposed amended statement of claim does not particularise the "series of conversations" to which reference is there made; and, other than [8B], the proposed amended pleading does not plead the terms of the alleged agreement. Similarly, complaint is made that the alleged November 2015 variation to the alleged partnership agreement (pleaded at [8G] and [8H]) does not plead whether the alleged variation(s) was or were oral or in writing, or who allegedly agreed to the variation(s) or how they did so (and it is further submitted that this appears to allege an agreement to agree which cannot be an agreement at law, citing Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72).
As to the allegation at [8E], to the effect that in carrying on the common business Mr Deans and FDC owed fiduciary duties to Mr Galati and TA, the complaint is that the proposed pleading does not plead why fiduciary duties were allegedly owed, what those fiduciary duties were, or how the alleged breach of fiduciary duty caused any loss "to Felans". (Pausing there, the plaintiffs' claim is for breach of fiduciary duties owed to them, not Felan's, so the question of loss to Felan's does not, on the plaintiffs' case arise.) The first to third defendants argue that the nature and scope of the fiduciary duty must be pleaded (citing Canberra Residential Developments Pty Ltd v Brendas (2010) 273 ALR 601; [2010] FCAFC 125 at [36] per Finkelstein, Siopis and Katzmann JJ ("Canberra Residential Developments")).
Mr Doyle Gray maintained that the proposed pleading is sufficient both as to the alleged agreement and as to the alleged fiduciary duties. Somewhat ironically, when one considers the pleading defect sought now to be rectified (i.e., that of pleading conclusions rather than the antecedent facts that might lead to such conclusions), what was submitted was that what is pleaded in the proposed amended statement of claim is "a material fact by way of conclusion" (see T 78.25). Mr Doyle Gray drew the analogy of a pleading based on a lease agreement and said (at T 77.39ff):
… in a case between, for example, a landlord and tenant, one does not normally plead every single term of the lease. What one pleads is that there was a lease and then pleads the specific terms of that lease which are relevant to the dispute.
That is what we have done here. We have pleaded, at a level of generality, that there was from a certain period of time, as we can believe, a partnership and that partnership gave rise to a fiduciary duty.
Then, later, we plead a series of refinements, amendments and variations until we get down to paragraph 27, which is the implementation of part of the
agreement. That is then executed.
Then, for example, paragraph 31. The entity is nominated in accordance with the agreement. Then the directors are nominated at paragraph 35 in accordance with the agreement.
Then these forms are lodged, which is the commencement of the breach, immediately after we have pleaded the details of THRS [sic], Mr Pho and the other representative director on behalf of Mr Deans.
They are the only terms which are relevant.
[12]
New Claim Amendments
As to the New Claim Amendments, there is complaint by the first to third defendants as to what is meant by the expression "in the premises" at various places in the proposed amended pleading (see, for example at [40A.7]; [40BC.3], [40C.3], [40C.4]). It is submitted that it is unclear what causes of action are alleged at [40B] and [40C] (the allegations as to the removal of Mr Hoban and Turner and as to the settlement of the 2015 Proceedings) and that there is no pleading of any loss or damage consequent upon non-compliance with the articles of association of Felan's or by reason of the alleged irregularities.
Apart from the criticism of the proposed amended pleading in this regard (with which it is unnecessary in the event to deal), the nub of the complaints made by the existing defendants, and those of the proposed additional defendants who were represented at the hearing of the amendment application, is that the claims to set aside the Deed of Settlement and Consent Order are untenable and that leave to amend in this respect would be futile. This was the subject of submissions by each of Mr Barham, Mr Hewitt and Mr Kidd, and adopted by Mr Bulley and Mr Ng.
For the first to third defendants, it is submitted that the New Claim Amendments ignore the effect of s 129 of the Corporations Act and the "indoor management" rule (the first to third defendants largely adopting the submissions of SFM in this regard). In summary, it is said: that this is not a case of ultra vires since it could not be said that Felan's did not have the power to instruct solicitors in respect of the litigation, or to settle litigation, or to enter into a deed of settlement; that there is no allegation that SFM or any of the other parties to the settlement was on notice of any alleged irregularity within Felan's; and that, on the basis of s 129 of the Corporations Act and/or the indoor management rule, there can be no basis for "undoing" orders already made by the Court or transactions already entered into under the Deed of Settlement.
It is submitted that, even if it be assumed that Mr Pho was wrongfully removed as a director, Mr Galati and TA had authorised the carrying on of the proceedings and had left the prosecution of the proceedings up to instructions given by Mr Deans. It is submitted that in circumstances where Mr Galati and TA were content for Mr Deans to provide the instructions, and where Mr Deans was, effectively, their agent for that purpose, it is no answer, particularly as against a third party, to claim that Mr Deans had no authority.
[13]
Position of the proposed fourth defendant
It was submitted that Mr Pho was a necessary party to be joined in circumstances where declaratory relief was being sought as to his status as a director. If the plaintiffs persist with that claimed relief I would give leave for Mr Pho to be added as the fourth defendant in the proceedings (and I assume from the fact that he did not seek to be represented on the present application and has provided an affidavit in support of the plaintiffs' case that he would not oppose such a course). However, any order to that effect should await the preparation of any further proposed statement of claim.
[14]
Costs
I see no reason why costs should not follow the event. The plaintiffs should certainly pay the proposed additional defendants' costs of the applications for leave to amend. As to the first to third defendants, the plaintiffs have failed in their application for leave to amend in terms of the proposed amended statement of claim. They will be given an opportunity to prepare a further proposed amended pleading but in my view they should pay the first to third defendants' costs of the application that was heard and on which they were in substance unsuccessful. In due course, if leave is given for any further proposed amended statement of claim, the plaintiffs will be required to pay the costs thrown away by the proposed further amendment of the statement of claim but I do not understand there to be any opposition to this.
[15]
Orders
The orders I make are as follows:
1. Dismiss the plaintiffs' application for leave to file the proposed amended statement of claim annexed to the notice of motion dated 28 June 2018.
2. Direct the plaintiffs to serve any further proposed amended statement of claim limited to causes of action against the existing first to third defendants and not including the claims for relief at prayers 4D or 4F (or 4C to the extent that this would affect the rights or interests of the proposed additional defendants) by no later than 12 December 2018 and, if there is objection by the existing defendants to leave being granted for the filing of that amended pleading, the existing defendants file and serve brief written submissions on or before 16 January 2019 and the plaintiffs file and serve any submissions in reply by 23 January 2019 with a view to the issue being determined on the papers.
3. The plaintiffs to pay the costs of the first to third defendants and of the proposed fifth to eighteenth defendants of the application for leave to amend.
4. Liberty to the parties to apply on 3 business days' notice.
I will stand the matter over to directions at a convenient time in the new law term and will stand the motion for injunctive relief over to that date as well.
[16]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 28 November 2018
(1843) 2 Hare 461; 67 ER 189
Galati v Deans [2018] NSWSC 1600
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; [1964] HCA 69
Hans Pet Constructions Pty Limited v Cassar [2009] NSWCA 230
Harvey v Phillips (1956) 95 CLR 235; [1956] HCA 27
Hastie Group Ltd (in liq) v Bourne [2017] NSWSC 709
Horton v Jones (No 2) (1939) 39 SR (NSW) 305
In the Matter of ACN 092 745 330 Pty Ltd [2018] NSWSC 1185
In the matter of Felan's Fisheries Pty Limited [2017] NSWSC 1502
John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19
Johnson v Gore Wood & Co [2002] 2 AC 1
Leotta v Public Transport Commission (NSW) (1976) 9 ALR 437; 50 ALJR 666
Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72
McGuirk v The University of New South Wales [2009] NSWSC 1424
Middleton v O'Neill (1943) 43 SR (NSW) 178
Mitanis v Pioneer Concrete (Vic) Pty Ltd (1997) ATPR 41-591
Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146; [1990] HCA 32
Owners Strata Plan No 57164 v Yau (2017) 355 ALR 571; [2017] NSWCA 341
Research in Motion Ltd v Samsung Electronics Australia Pty Ltd (2009) 176 FCR 66; [2009] FCA 320
Royal British Bank v Turquand (1855) 5 El & Bl 248; 119 ER 474
S1 v The Trustees of Marist Brothers [2016] NSWSC 970
Steiner v Strang [2016] NSWSC 9
Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm) [2015] FCA 1098
Tamaya Resources Ltd (in liq) v Deloitte Touche Tohmatsu (a firm) (2016) 332 ALR 199; [2016] FCAFC 2
TCN Channel 9 Pty Ltd v Antoniadis (1998) 44 NSWLR 682
UBS AG v Tyne [2018] HCA 45
VPlus Holdings Pty Ltd v Bank of Western Australia Pty Ltd (2012) 91 ACSR 545; [2012] NSWSC 1327
Wentworth v Rogers (No 5) (1986) 6 NSWLR 534
Weston v Publishing and Broadcasting Ltd (2012) 88 ACSR 80; [2012] NSWCA 79
Williams Group Australia Pty Ltd v Crocker [2016] NSWCA 265
Wride v Schulze [2004] FCAFC 216
Texts Cited: Austin, R P and Black, A J, Annotations to the Corporations Act, Vol 1 (LexisNexis)
Category: Procedural and other rulings
Parties: Dominic Gerardo Galati (First Plaintiff)
Trading Australia Pty Ltd (Second Plaintiff)
Robert Paton Deans (First Defendant)
Fishbank Development Corporation Pty Ltd (Second Defendant)
TRHS Pty Ltd (Third Defendant)
Felan's Fisheries Pty Ltd (Proposed Fourth Defendant)
Sebastian Stevens (Proposed Fifth Defendant)
Sydney Fish Market Pty Ltd (Proposed Sixth Defendant)
SFM Tenants and Merchants Pty Ltd (Proposed Seventh Defendant)
Bruce James Standen (Proposed Eighth Defendant)
Graham Richard Turk (Proposed Ninth Defendant)
John Samuel Symonds (Proposed Tenth Defendant)
William John Gallagher (Proposed Eleventh Defendant)
Sandra Margaret Hook (Proposed Twelfth Defendant)
Terry Con Poulos (Proposed Thirteenth Defendant)
Harry Kouros (Proposed Fourteenth Defendant)
George Apostolakis (Proposed Fifteenth Defendant)
John Jeffreson (Proposed Sixteenth Defendant)
Ross Geoffrey Fidden (Proposed Seventeenth Defendant)
Gregory George Imisides (Proposed Eighteenth Defendant)
Thanh-Chi Pho (Proposed Nineteenth Defendant)
Representation: Counsel:
P Doyle Gray with A Butt (Plaintiffs)
P Barham (First to Third Defendants)
A J Bulley (Proposed Fifth Defendant)
J C Hewitt (Proposed Sixth Defendant)
G E S Ng (Proposed Seventh Defendant)
N J Kidd SC (Proposed Eighth to Seventeenth Defendants)
The existing pleading then makes various allegations as to the purported removal (by lodgement of an ASIC form on or about 27 April 2016, stated to be effective as of 26 February 2016), without the plaintiffs' consent and without notice to the plaintiffs, of Mr Pho as a director of Felan's and the appointment of a Mr Hoban as a director ([41]-[44]), and then as to the subsequent purported removal of Mr Hoban and Mr Turner (Mr Deans' appointee director) accompanied by the purported appointment of Mr Deans as the sole director of Felan's (see [45]-[46]); those purported changes again being alleged to have been made without the authority, consent or knowledge of either of the plaintiffs ([47]). (Neither Mr Hoban nor, as previously noted, Mr Turner, is named as an existing or proposed additional defendant in the current proceedings.)
It is alleged (at [48]) that "[i]n the premises", the conduct of Mr Deans and FDC in effecting the purported changes of directors of Felan's and/or causing or procuring the lodgement with ASIC of the respective forms in relation thereto, was in breach of the agreement alleged at [28] (see [21] above); and a breach of the trust referred to at [40] (see [23] above). At [49], it is alleged that the conduct of Mr Deans in causing or procuring the lodgement with ASIC of the form purporting to record the removal of Mr Pho as a director amounted to a contravention of ss 188(1) and 205B(5) of the Corporations Act 2001 (Cth) in that it falsely declared that Mr Pho had ceased to act as a director of Felan's.
Paragraphs [50]-[52] then plead to a failure of Mr Deans and FDC to acknowledge and give proper legal effect to TA's beneficial interest in the shares in Felan's and assert that this amounts to a breach of the said agreement and is in breach of the alleged trust.
The relief sought in the existing pleading comprises a series of declarations as well as orders providing for the appointment of Mr Galati or his nominee as a director of Felan's; the removal of TRHS as trustee of the shares in Felan's and the appointment of another entity as trustee of those shares; and an order that TRHS transfer all of the shares to that trustee; together with such further or other orders (including orders for any necessary accounts or enquiries) as the Court deems fit or thinks necessary.
On the hearing of the amendment application, Mr Doyle Gray explained (at T 12.10ff) that one of the problems with the existing pleading is that it alleges a breach of trust (on the part of Mr Deans) when in fact Mr Deans was never a trustee:
So one of the reasons for the proposed amendment is to correct that way in which the dispute has been pleaded and to begin with the relationship of partnership between Mr Galati and Mr Deans and then to plead that Mr Deans caused the records of ASIC to be altered in breach of his fiduciary duty as a partner owed to Mr Galati.
It is not so much we say the filling in the forms that gives rise to the breach but rather it was the behaviour by Mr Deans in purporting to assume sole control of Felan's Fisheries and thereby dispose of its assets by way of this deed to the exclusion of Mr Galati that gives rise to this dispute.
The reference by Mr Doyle Gray to a deed is a reference to the Deed of Settlement disposing of the 2015 Proceedings.
Clause 2 of the Deed of Settlement governed the sale of the shares for the purposes of the mechanism provided for under Felan's lease, as referred to above (see Mr Webster's affidavit at [11]). In summary, cl 2.1(b) of the Deed of Settlement required Felan's to execute (and provide a copy to SFM and to Buyers) an Irrevocable Power of Attorney in favour of a partner of one of three named accounting firms nominated by SFM with respect to Felan's shares in Buyers (the Buyers Shares); and cl 2.1(d) recorded an agreement that, by not later than 29 January 2018 the Buyers Shares be offered for sale pursuant to the Irrevocable Power of Attorney at a specified price per share. Clause 5.1(b) of the Deed of Settlement, on which the plaintiffs in submissions placed some emphasis, obliged the parties (in context this presumably refers to the parties to the Deed although not all of those were parties to the 2015 Proceedings) to instruct their solicitors to sign the Consent Order contained in a schedule to the Deed and to provide a signed original to the solicitors for SFM.
On 10 November 2017, Black J made orders by consent dismissing the 2015 Proceedings. A copy of those orders is annexed to Mr Webster's affidavit (Annexure C). The Consent Order handed up to Black J was in the form provided for under the Deed of Settlement and was signed, inter alios, by Mr Fraser in his capacity as the solicitor for Felan's (see Mr Webster's affidavit at [10]).
The nub of the New Claim Amendments (see further below) relates to the conduct of Mr Deans in authorising the settlement of the 2015 Proceedings. The plaintiffs say that Mr Deans had no authority to enter into the Deed of Settlement (on behalf of Felan's) and that that agreement is "of nil effect" (see T 16.27).
The proposed new relief to be sought includes a declaration that the Deed of Settlement is "void and of nil effect insofar as it binds Felan's Fisheries and the parties to the 2015 Proceedings inter se" (prayer 4D) and an order setting aside the orders in the 2015 Proceedings insofar as they were made consequent upon the Deed of Settlement (prayer 4F). The effect of what is thus contemplated appears to be to reinstate the dispute as between Felan's on the one hand and SFM and its directors on the other hand as to the validity of the termination of the lease and licence and as to the alleged breach of directors' duties in relation thereto. (Arguably, the former could raise issues as to the rights of any new incumbent of the premises the subject of the terminated lease and licence, though this was not raised in submissions on the present application.)
Subsequent to the settlement of the 2015 Proceedings, and as contemplated in the Deed of Settlement, steps have been taken for the sale of the Buyers Shares (the parcel of 1.875 million shares held by Felan's in Buyers) (see Mr Webster's affidavit at [14]). Mr Webster has deposed to his understanding (based on conversations between employees of his firm and of BDO) that most of Felan's shares in Buyers have now been sold to third party existing shareholders but that (as at 26 October 2018 when his affidavit was made) the registration of those transfers had not yet taken place (see at [14]). I was informed from the Bar table by Mr Bulley that on his instructions there are only around 18,000 shares (of the parcel of 1.875 million) yet to be sold (see T 86.31). (Mr Doyle Gray intimated that if disclosure orders were made there might be an application to join the purchasers to the proceedings or otherwise to make applications in relation to them.)
The proposed amended pleading alleges (as does the existing pleading) that the third defendant, TRHS, was the registered owner of 100% of the shares in Felan's, and that TRHS held the shares on trust as to 50% for TA and as to 50% for FDC (see at [31], [38]).
At [33A] it is alleged that "[i]n the premises, Felan's Shares became a partnership asset or, in the alternative, an asset of the joint venture".
In relation to the changes to the directorships in Felan's, declaratory relief is sought (the basis for which is pleaded at [40B]), as noted above, and (though not reflected in the pleaded claim as such) declaratory relief is also sought as to breach by Mr Deans of his fiduciary duty in "purporting" to settle the 2015 Proceedings. (Although FDC is alleged to have owed fiduciary duties - see [8E], no breach of fiduciary duty appears to be alleged against it.)
The proposed additional defendants are sought to be joined to the proceedings on the basis that they are necessary parties insofar as they are persons or entities whose rights or liabilities in relation to the subject matter of the proceedings may be affected by the relief now proposed to be sought in the proposed amended statement of claim (see T 16.35; and see John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19). A formal amendment of the proceedings is necessary to join a party to the proceedings (and see the provisions of Uniform Civil Procedure Rules 2005 (NSW) r 6.24 (UCPR) as to joinder). Although leave has not formally been sought pursuant to UCPR r 6.24 or pursuant to any other provision of the Rules (for joinder of the proposed additional defendants), that is clearly what is here sought to be effected by the proposed amended statement of claim and I have treated the amendment application as extending to the joinder of the proposed additional defendants.
In Aon, the factors to be weighed in the exercise of discretion to grant leave to amend were said by the plurality (at [102]) to include: the nature and importance of the amendments to the plaintiffs; the effect of the proposed amendments on the defendants; the delay in making the amendments; and, where there is delay in applying for amendment, whether an adequate explanation for the delay has been given. (As to the question of delay, see also Tamaya Resources Ltd (in liq) v Deloitte Touche Tohmatsu (a firm) (2016) 332 ALR 199; [2016] FCAFC 2.) In the exercise of the discretion, other significant matters for consideration include the public interest in finality in litigation and the principle that a party should not be vexed twice in the same matter (see Aon at [34] per French CJ, there citing Johnson v Gore Wood & Co [2002] 2 AC 1 at 31).
The Court will not grant leave to allow an amendment if it would be liable to be struck out had it appeared in the original pleading (see Horton v Jones (No 2) at 310; McGuirk v The University of New South Wales [2009] NSWSC 1424 at [18]) or if there is no arguable basis for the amendments sought to be made (In the Matter of ACN 092 745 330 Pty Ltd [2018] NSWSC 1185 at [61]). (In this regard, see also Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm) [2015] FCA 1098 at [142]-[143] (Gleeson J) ("Tamaya"); Caason Investments Pty Ltd v Cao (2015) 236 FCR 322; [2015] FCAFC 94 at [21] (Gilmour and Foster JJ); ACN 074 971 109 v The National Mutual Life Association of Australasia Ltd [2010] VSC 186 at [29] (Croft J); Research in Motion Ltd v Samsung Electronics Australia Pty Ltd (2009) 176 FCR 66; [2009] FCA 320 at [21], [23] (Kenny J); Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd (1995) 58 FCR 26 at 36 (Lindgren J, Lockhart and Tamberlin JJ agreeing).)
Also read by the plaintiffs on the current application were affidavits by other witnesses intended to be called as the principal witnesses for the plaintiffs: namely, affidavits from Ms Kerry Anne Hyland (aka Bhavani Ma) affirmed 21 June 2018, Mr Thanh-Chi Pho affirmed 21 June 2018, and Mr Kym Lennox affirmed 30 August 2018. No exhibits referred to in any of the plaintiffs' affidavits (see T 8.16) were tendered on the application before me. Briefly, as to those witnesses, I note as follows.
Mr Pho has deposed to his lack of consent for his removal as a director and says that, had he been advised of the settlement proposal for the 2015 Proceedings, he would have spoken to Mr Galati and requested Mr Galati's instructions (see his affidavit at [100]). Mr Galati's evidence is that had he been contacted about the settlement of the 2015 Proceedings he would have objected to it (see his affidavit at [5]).
Ms Ma (by which name she says she prefers to be known and is known professionally - see her affidavit at [1]) is a director who describes herself as a "mentor and teacher in empowering relationships" and a "master of creative solutions who inspires excellence in teamwork and communication drawing upon decades of experience in the corporate world" (see [2]). She works as a contractor consultant to Mr Galati and TA, including in relation to all of his involvement in matters concerning this proceeding (see [7]). She was described by Mr Doyle Gray as having previously been Mr Deans' administrative assistant.
Mr Lennox is a consultant with an advisory firm that has a focus on infrastructure and property development (see [1]). He was involved between about late 2012 and mid 2014 in the preparation of what he describes as "an Unsolicited Proposal for the redevelopment of the Sydney Fish Market and related matters" (see [5(g)]) and had dealings with Mr Deans and Mr Galati in relation to that project.
The evidence of Mr Lennox and Ms Ma is relied upon by the plaintiffs as to the course of dealings before November 2015 and as to subsequent events (see T 20.43). It is submitted by Mr Doyle Gray that these affidavits "illuminate the significant complexity of the issues and the inadequacy of Mr Galati's previous solicitors to plead those issues and prepare evidence" (plaintiffs' submissions at [9]).
Mr Doyle Gray here identifies the central issue as being the relief sought by the proposed amendments for the setting aside of the settlement of the 2015 Proceedings, both as to the Deed of Settlement and the Consent Order. The plaintiffs' claim in this regard is articulated as being that Mr Deans purported to bind Felan's to the settlement of the 2015 Proceedings, and purported to give consent to the orders disposing of the proceedings, when he had neither actual nor ostensible authority so to do.
It is submitted that the question whether the compromise is to be set aside depends upon the existence of a ground which would suffice to render a simple contract void or voidable or to entitle the party to equitable relief against it (Mr Doyle Gray citing Harvey v Phillips (1956) 95 CLR 235 at 243; [1956] HCA 27; Owners Strata Plan No 57164 v Yau (2017) 355 ALR 571; [2017] NSWCA 341 ("Owners Strata Plan v Yau")). It is further submitted that the question whether Mr Deans had actual or ostensible authority is a matter of fact and that the proposed amendments plead allegations of fact which, if accepted, establish that Mr Deans was never a director of Felan's. The plaintiffs argue that Mr Deans "merely submitted forms to the Australian Securities and Investments Commission altering the register and giving the impression he was the sole director when that was not true" and that he had no actual authority. As to ostensible authority, the plaintiffs argue that it would be necessary for the defendants to raise a defence that Mr Pho (the other director) or someone else in authority held out, in some fashion, that Mr Deans was authorised to settle the 2015 Proceedings (citing Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146; [1990] HCA 32 ("Northside"); Williams Group Australia Pty Ltd v Crocker [2016] NSWCA 265) and they point to the fact that Mr Pho asserts no such thing.
Mr Doyle Gray submits that the dictates of justice demand a grant of leave to amend, asserting that the plaintiffs have a claim with reasonable prospects of success, the complexity of which has not been adequately addressed in the current version of the statement of claim, and that the proposed amendments remedy that deficiency. He notes that the plaintiffs have prepared their substantive evidence and says that any further delay will depend upon: the defence, the evidence served by the defendants, and the extent to which the defendants produce documents the only copies of which are in their possession, custody or control which corroborate the evidence of the plaintiffs' principal witnesses.
It is submitted that granting leave, and permitting the plaintiffs to rely on affidavits already served, will bring to the proceedings "much-needed order and regularity" (plaintiffs' submissions at [20]). It is further submitted that the amendments "do nothing more than amend the originating process to reflect the evidence that the plaintiff wishes to bring to meet the evidence that the defendant has already served" (see T 20.25). (That last proposition is made primarily by reference to the Existing Claim Amendments - see T 20.34; but is not confined to those amendments - see T 20.40.) Nevertheless, and albeit with some seeming reluctance, it was accepted by Mr Doyle Gray that, once there was a change of solicitors (in late April 2018), the plaintiffs' new solicitor has sought to re-plead a wholly new case in relation to the Deed of Settlement and Consent Order (see T 19.4ff).
The first to third defendants accept that they have recently sought to amend their cross-claim but say that this was on the basis of materials which had come to light since the commencement of the proceedings by way of documents produced under subpoenas and/or notices to produce (and an affidavit from a new witness - Ms Carolyn Pritchard of 3 September 2018). It is submitted that the cross-claim amendments (in essence, the secret commission allegations) involve matters of a serious kind which could not be pleaded without a proper evidentiary foundation (and hence could not have been pleaded earlier than they were).
They also complain that there is no explanation as to why what is now sought to be done was not done at the first instance, or at least in 2017; and as to why no enquiry was made in respect of the progress of the 2015 Proceedings which are now sought to be impugned, notwithstanding that TA and Mr Galati had the benefit of legal representation throughout that period.
It is submitted that Mr Galati and TA knew about the 2015 Proceedings; and were content for them to be prosecuted (without funding them beyond a certain point), leaving it up to Mr Deans to give instructions. The first to third defendants complain that, even after 22 December 2017 when Mr Galati says he became aware of the settlement of the 2015 Proceedings, he did nothing until late June 2018 to seek to advance any claim in respect of the matters he now seeks to raise (notwithstanding that Mr Deans was at that stage putting on evidence in reply to the plaintiffs' evidence).
In particular, the first to third defendants point to documents which indicate that Ms Ma (on behalf of the plaintiffs) made enquiries of SFM as early as 10 February 2016 requesting a meeting to discuss settlement of the proceeding and that the former solicitors for the plaintiffs (JJ Honeyman & Associates) corresponded with Felan's solicitors (Fraser Clancy) in June 2016, making it clear that they were aware of the proceedings (in which correspondence they advised that their client (Mr Galati or TA) was not entertaining the idea of providing further funding in respect of the litigation). The first to third defendants maintain that there is no evidence of Mr Galati or any of his legal advisors ever making any further enquiry as to the conduct of the proceedings after 2016 and no evidence of any failure or refusal to provide Mr Galati or his legal advisors with information concerning the proceedings.
As to the fiduciary duty allegations, it appears that those rest on the existence of a partnership or joint venture. Presumably what is intended is to invoke whatever might be considered to be the typical or common fiduciary duties inherent in such a relationship. It is said that what has been pleaded is an allegation of equitable fraud, blending the "consequence of breach of fiduciary duty and the dissipation of assets" (see T 66.20), those being described as the two material facts.
In my opinion the criticisms made as to the pleading deficiencies in the Existing Claim Amendments to the proposed amended statement of claim have considerable force.
The agreement alleged at [8A] is not properly pleaded nor are the alleged variations to that agreement. It is not sufficient to plead in conclusory terms that "following a series of [unidentified] conversations" something was orally agreed. The first to third defendants are entitled to know what conversations are alleged to give rise to the alleged oral agreement and, in particular, the substance of what was said by whom to whom in those conversations, so that they can properly plead to the allegations. They should not be left to trawl through affidavit evidence in an attempt to discern the substance of the case alleged against them (see Collier v Country Women's Association of New South Wales [2017] NSWCA 22 ("Collier").
The alleged April 2015 variation of the partnership or alternatively the joint venture is said to be in writing but what comprised the substance of the alleged variation(s) is not pleaded - one is simply left to the particulars which refer to a document titled "Agreement Principles …".
Although at least some of the terms of the alleged November 2015 variation have been pleaded (at [8H]), this is a non-exhaustive list (prefaced by the word "including") and in any event the allegation that there was such a variation is no more than the statement of a conclusion as to the effect of whatever it is that is alleged to have been said and/or written or done to give rise to such a conclusion.
Thus at least some of the deficiencies recognised in the existing pleading appear to be replicated in the proposed amended pleading.
As to the allegations based on fiduciary duty, what was made clear in the Canberra Residential Developments decision (at [36]) is that the mere existence of a fiduciary relationship does not define the nature of the relevant duties, their Honours going on to say:
… First, it is wrong to assume that the duty owed by a fiduciary attaches to every aspect of the fiduciary's conduct, however, irrelevant that conduct is to the relationship that is the source of the duty: Re Coomber [1911] 1 Ch 723 at 728-9. Second, the scope of the duty is very much dependent upon the facts of the particular case: Hospital Products at CLR 69, 73; ALR 435-6 per Gibbs CJ and at CLR 102; ALR 458 per Mason J. See also Henderson, Hallam-Eames & Hughes v Merrett Syndicates Ltd [1995] 2 AC 145 at 206; [1994] 3 All ER 506 at 543. In most cases the duty will be determined in large part by reference to the nature of the activities of the principal: Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 at 407-8; [1929] ALR 273 at 283-4, referring to the need to identify the principal's "venture or undertaking". Third, defining the scope of the duty must be approached with commonsense and with an appreciation of the sort of circumstances in which it has been applied in the past. …
Those observations are apposite here, where what is alleged is in the alternative - a partnership or a joint venture (bearing in mind that the latter is not a technical legal term or concept); and where the scope of the alleged partnership or joint venture has been pleaded only in very broad terms (see [8A]) by reference to an oral agreement (the terms of which, but for one, are not identified) "to carry on a business in common with a view of profit, namely to acquire an interest in the Sydney Fish Market, initiate, participate in, and profit from the Sydney Fish Market's redevelopment based upon a proposal known as Destination Blackwattle Bay".
The nature and scope of the alleged fiduciary duties need to be clearly articulated and there should be clarity as to what fiduciary duty is alleged to have been breached and by whom. It should here be noted that although the declaratory relief sought at prayer 4A speaks in terms of a breach of fiduciary duty by both Mr Deans and FDC (by their conduct "in purporting to remove" Mr Pho as a director of Felan's), the allegations of breach of fiduciary duty in that regard are pleaded at [40A.7] as a breach by Mr Deans in procuring his own appointment as director and at [40B.2] as a breach by Mr Deans in procuring Mr Pho's removal as a director. There is no allegation of breach by FDC in that regard. Nor, despite the declaration sought at prayer 4E (that Mr Deans' conduct in purporting to settle the 2015 Proceedings constituted a breach of fiduciary duty), is there an allegation to that effect in the body of the proposed amended statement of claim.
Pleadings must state all of the material facts that are necessary to constitute a complete cause of action and the relief sought (see Mitanis v Pioneer Concrete (Vic) Pty Ltd (1997) ATPR 41-591 at 44,151-44,152; Wride v Schulze [2004] FCAFC 216 at [25]). I have made clear elsewhere the need for pleadings properly to make clear the claim(s) a defendant has to meet (see Collier; Hastie Group Ltd (in liq) v Bourne [2017] NSWSC 709).
I have already noted the authorities that stand for the proposition that leave to amend will generally not be granted if the pleading is not properly pleaded or liable to be struck out as embarrassing. I am not prepared to grant leave to allow the Existing Claim Amendments in light of the pleading deficiencies which have been identified therewith.
When I indicated as much in the course of argument, Mr Doyle Gray sought a short period of time (two weeks) in which to address the deficiencies in the pleading. Mr Barham, for the first to third defendants, opposed this on the basis of the delay to date (noting that the pleading deficiencies had been identified in submissions but there had been no amendment suggested to the proposed amended statement of claim) and on case management principles.
The admonition by the High Court that a plaintiff should not be denied the right to prosecute a claim unless it is clearly demonstrated that there is no arguable cause of action (see General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129; [1964] HCA 69 (Barwick CJ) and Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91; [1949] HCA 1 (Dixon J)) is relevant in the present context. It has been said that leave to re-plead ought be granted unless the Court takes the view that the proceeding is frivolous or vexatious or no reasonable cause of action is disclosed (see Steiner v Strang [2016] NSWSC 9 at [26]-[27], [49]; S1 v The Trustees of Marist Brothers [2016] NSWSC 970 at [51]-[52]) or that the case sought to be put is "hopeless" or "manifestly groundless" (see Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 at 536; Commonwealth Bank of Australia v ZYX Learning Centres Limited [2014] NSWSC 1676 at [254]-[256]). I would add that this must also be the case where there are case management grounds, consistent with the dictates of justice, for refusing an opportunity to re-plead.
In CA & CA Ballan Pty Ltd v Oliver Hume (Australia) Pty Ltd [2017] VSCA 11 at [24], the Victorian Court of Appeal said that leave to re-plead will only be refused if the amendments raise a claim that has no real prospect of success, in the sense of being fanciful, in accordance with the criteria for summary dismissal set out in s 63(1) of the Civil Procedure Act 2010 (Vic). The Court there recognised (at [27]) that evidence adduced at trial may shape the case in ways that have not been anticipated despite the best efforts of litigants and their lawyers.
It is in my opinion appropriate to afford the plaintiffs a final opportunity properly to plead their claim against the existing defendants arising out of the alleged partnership or joint venture. True it is that this is at a late stage in the preparation of the matter for hearing (and after the evidence has been served by the principal protagonists). However, there are still interlocutory steps being undertaken (in relation to the cross-claim brought by Mr Deans and FDC) and I am not persuaded that the ambit of the re-pleading (if confined to the subject matter of the Existing Claim Amendments) will cause such disruption to the preparation of the matter for hearing (of the kind the first to third defendants suggest there would be) as to warrant the refusal of such an opportunity.
Subject to what I will say about the New Claim Amendments, I propose to direct that the plaintiffs serve on the first to third defendants within 14 days a further proposed amended statement of claim addressing the complaints made as to the Existing Claim Amendments. If those defendants object to leave being granted for the filing of that further proposed amended statement of claim then they should file and serve brief (no more than 3 pages) written submissions within a specified period setting out the basis of the objections and the plaintiffs should file and serve any reply submissions (similarly limited to no more than 3 pages) within a further specified period, with a view to the issue as to whether leave to amend in that form should be granted being dealt with on the papers. Given that the end of the law term is now imminent, the period for submissions in relation to any such objections (though I am by no means encouraging such a course) should be staggered over January with a view to the matter coming back for directions in early February 2019 and a ruling at that stage as to the (on that hypothesis) further amendment application.
I should add that any such amended pleading should make clear the precise entity or person to which or to whom it is alleged that Mr Deans (and, if such an allegation goes anywhere on the pleadings - which it presently does not - FDC) owed fiduciary duties (and the nature and scope of those duties). As I understand it, the plaintiffs are disavowing any claim based on Mr Deans owing fiduciary duties (or any other kind of duties) to Felan's. Rather, Mr Doyle Gray says that what is being pressed is Mr Galati's (and/or TA's) claim for breach of fiduciary duties owed to him (and/or it).
Further, complaint is made by the first to third defendants (in the context of their criticism of the New Claim Amendments) that there is an assumption in the proposed amended pleading that the settlement of the 2015 Proceedings was not a proper course for Felan's to take and that the pleading does not set out what it alleges would have happened had TA or Mr Galati in fact maintained an interest in the proceedings and wanted to assert a position contrary to the settlement. It is noted that the proposed pleading does not plead any issue in respect of damage or causation in this regard. The plaintiffs' submissions, as I understand them, focus not so much on the settlement of the 2015 Proceedings per se but on the terms on which the proceedings were settled (it being described, as I have earlier noted, as a total capitulation in favour of the defendants, including an agreement for the sale of the Buyers Shares for a "knockdown price"). The plaintiffs' case, in that regard should be made clear in any further proposed amended pleading.
If a claim against Mr Deans or FDC for equitable compensation or for damages for breach of the alleged partnership or joint venture agreement is to be pressed then there will need to be amendments to the proposed amended statement of claim to address that issue. In that context, as I raised during the course of the hearing of the amendment application, it might be that the declaration sought at prayer 4C of the proposed amended statement of claim is still pressed (albeit that, having regard to the conclusion I have reached as to the New Claim Amendments, this would not bind the proposed additional defendants and would not give rise to an order for the setting aside of the Deed of Settlement or Consent Order).
Finally, as to the requirement that amendment be made for a proper purpose, it is submitted by the first to third defendants that even if there is a viable cause of action that there was a breach of fiduciary duty in relation to the removal of Mr Pho, that cause of action is an action for damages or equitable compensation against Mr Deans or FDC. It is submitted that there is no relief which is available to the plaintiffs to seek to undo or unwind a transaction entered into by a third party, which is in the position of a bona fide third party for value, without notice, and that the fact that the plaintiffs are not seeking damages or equitable compensation in respect of the alleged breach of fiduciary duty calls into question the bona fides of the proposed amendments. The first to third defendants argue that there is no reason why a damages award as against the first two defendants, without involving all of the proposed additional defendants, would not be an adequate remedy.
Pausing here, Mr Doyle Gray challenges the proposition that a monetary judgment against the first or second defendants would be an adequate remedy, pointing to the evidence which was before me on the hearing of the security for costs application the subject of my earlier decision in these proceedings as to Mr Deans' financial ability to meet any monetary judgment. In this regard, Mr Doyle Gray emphasises the correspondence in which Mr Deans, on the letterhead of Felan's, referred to an impending share sale "under market value" and to a valuation obtained from Felan's that the shares "have an average potential value of in excess of $106 million" (see the letter annexed to Mr Glinatsis' first affidavit - Annexure C at p 70 and the valuation by Bertacco Ferrier Property Consultants - Annexure D at p 72). Mr Doyle Gray submitted that the best evidence as to the value of Mr Galati's interest (for the purposes of the present application) should be the valuation that Mr Deans himself circulated at large; and that, Mr Deans being a wrongdoer, in exercising my discretion I should "hold Mr Deans to his representation when he made it in this letter" (T 72.18). Mr Doyle Gray dismisses the three other valuations that were in evidence as being valuations prepared for security for costs purposes.
Coming back to the respective defendants' submissions as to the untenable nature of the claims sought to be raised in relation to the New Claims Amendments, SFM raises, in summary, three issues.
First, SFM submits that the plaintiffs lack standing to bring the proposed claims in relation to the settlement of the 2015 Proceedings; second, that the submission that Mr Deans lacked authority to cause Felan's to enter into the Deed of Settlement is futile having regard to ss 128 and 129 of the Corporations Act; and, third, pointing to the restrictions on the re-opening of final orders.
As to the first, on the question of standing, SFM notes that the plaintiffs: were not parties to the 2015 Proceedings; were not parties to the Deed of Settlement; and were not bound by the orders made dismissing the 2015 Proceedings. It is submitted that Felan's is the proper plaintiff in relation to any claim for an order setting aside the orders in the 2015 Proceedings. Insofar as the plaintiffs' interest in Felan's is asserted on the basis that TRHS held its shares in Felan's on trust for, or as nominee for, the plaintiffs, it is submitted that this is not a sufficient basis to confer standing on the plaintiffs to bring proceedings on behalf of Felan's.
In that regard, reference is made to the proper plaintiff rule of the general law established by Foss v Harbottle (1843) 2 Hare 461; 67 ER 189 (see VPlus Holdings Pty Ltd v Bank of Western Australia Pty Ltd (2012) 91 ACSR 545; [2012] NSWSC 1327 at [39] citing Austin & Black's Annotations to the Corporations Act, Vol 1 (LexisNexis) at [2F.236]) and to the abolition of the general law exceptions to the rule in Foss v Harbottle by s 236(3) of the Corporations Act. It is submitted by Mr Hewitt that, in order to bring proceedings on behalf of Felan's, the plaintiffs require leave under s 237 of the Corporations Act, and it is noted that no such application has been made.
Pausing here, Mr Doyle Gray's response to this is that "[t]his talk of Foss v Harbottle" overlooks the fundamental point that the corporation (Felan's) does not have a cause of action against anyone, because "the corporation is simply the means by which equitable fraud was perpetrated on Mr Galati" (T 66.15). Mr Doyle Gray emphasises that the claim here being made is a claim by Mr Galati arising out of a partnership with Mr Deans and that it is Mr Galati, not Felan's, who possesses the equity to bring these proceedings. It is submitted that the fact that the claim might be recast as a claim by Felan's is not to the point.
Second, on the question of Mr Deans' authority to cause Felan's to enter into the Deed of Settlement, reference is made by SFM to s 128(1) of the Corporations Act (which provides that a person is entitled to make the assumptions in s 129 in relation to dealings with the company and the company is not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect) and s 129(5) of the Corporations Act (which provides that a person may assume that a document has been duly executed by the company if the document appears to have been signed in accordance with s 127(1) and may also assume "that anyone who signs the document and states next to their signature that they are the sole director and sole company secretary of the company occupies both offices" - see SFM's submissions at [23]).
Mr Hewitt notes that the Deed of Settlement was executed on behalf of Felan's by Mr Deans, who signed the Deed of Settlement as the sole director and sole company secretary of Felan's. It is submitted that the other parties to the Deed of Settlement, including SFM, were entitled to make the assumption in s 129(5) to the effect that the Deed of Settlement was properly executed by Felan's; and that Felan's is precluded by s 128(1) from making any assertion to the contrary. Thus, it is submitted, it follows that Felan's is bound by the Deed of Settlement regardless of whether or not Mr Deans was validly appointed as a director of Felan's.
Pausing here, Mr Doyle Gray submits that s 128 of the Corporations Act does not apply to Mr Galati and that the rule in Turquand's Case (Royal British Bank v Turquand (1855) 5 El & Bl 248; 119 ER 474) is not the end of the matter, referring to the decision in Northside at p 206 per Toohey J, with whom Brennan J agreed.
Third, a further reason why the claims made by the plaintiffs in relation to the settlement of the 2015 Proceedings are said by SFM to be futile is that, by consent, Black J made final orders dismissing the 2015 Proceedings. The Consent Order that was provided to Black J was signed by Mr Fraser in his capacity as the solicitor for Felan's. Mr Hewitt notes that a solicitor retained to conduct litigation ordinarily has both implied and ostensible authority to bind his client to a compromise of those proceedings (citing Donellan v Watson (1990) 21 NSWLR 335 at 342).
Mr Hewitt points to Burrell v The Queen (2008) 238 CLR 218; [2008] HCA 34 at [15] where it was recognised that the restriction on the reopening of final orders after they have been formally recorded is based on "fundamental principles about finality of litigation". It is submitted that there are no allegations here made that would provide a basis for the setting aside of orders under the relevant UCPR provision (see rr 36.15; 36.16) and that there is no allegation that the orders made dismissing the 2015 Proceedings were obtained by fraud or otherwise improperly.
Mr Doyle Gray argues that these submissions fail to take into account the decisions in Harvey v Phillips and Owners Strata Plan v Yau and the recognition (see Owners Strata Plan v Yau at [80] per Beazley P), which are said to support the proposition that there is an inherent jurisdiction to set aside court orders.
Mr Kidd, for the director defendants, makes similar submissions to those raised by Mr Hewitt to the effect that leave to file the amended statement of claim should be refused insofar as it seeks the relief in prayers 4C, 4D and 4F (and the corresponding paragraphs in the pleading, [40C.1]-[40C.4]), on the basis that those claims disclose no reasonable cause of action and would be liable to be summarily dismissed: arguing that neither of the plaintiffs has standing to bring proceedings on behalf of Felan's to seek a declaration that the Deed of Settlement be set aside and that neither plaintiff (nor Felan's) is entitled to assert in proceedings against the director defendants (and other parties to the Deed of Settlement) that the assumption that the Deed of Settlement was duly executed is incorrect (by force of s 128(1) of the Corporations Act and by reference to the assumptions in s 129(5) of the Corporations Act).
As to the declaration sought in prayer 4F (an order setting aside the consent order dismissing the 2015 Proceedings), Mr Kidd submits that it follows from the above that this claim is futile. Mr Kidd points to the inclusion in the Deed of Settlement (in cl 4) of full releases by Felan's of all claims made in the 2015 Proceedings. It is submitted that setting aside an order dismissing the 2015 Proceedings would not prevent the releases from operating and therefore would have no utility. Further, it is submitted that there are no facts alleged in the proposed amended statement of claim which would enliven the Court's power in UCPR r 36.15 to set aside a court order made by consent of the parties (a fortiori where there is no suggestion that the solicitor on the record for Felan's who signed the consent orders had not been validly appointed as Felan's solicitor).
Mr Ng appearing for the proposed fifth defendant, correctly anticipating the submission in reply by Mr Doyle Gray to the effect that ss 128 and 129 of the Corporations Act do not assist the proposed additional defendants (because pursuant to s 128(1) it is the company only that is precluded in proceedings from denying the correctness of the statutory assumptions), made two points. First, that any such submission would highlight the extent to which the position of the plaintiffs depends upon their overcoming the rule in Foss v Harbottle and, second, that in any event, the proposed additional defendants would have the benefit of the general law indoor management rule which is not confined in the manner that appears in s 128(1).
In that regard, Mr Ng referred to the decision of Gummow J, then sitting in the Federal Court of Australia, in Australian Capital Television Pty Ltd v Minister for Transport and Communications (1989) 86 ALR 119, in which judicial review had been sought in respect of decisions by the Minister concerning approval of implementation plans and an issue was raised as to whether various implementation plans under the Broadcasting Act 1942 (Cth) had been validly executed by various proponents (see at p 128).
At p 157 of that decision, Gummow J discussed the relationship between the common law indoor management rule and one of the predecessors to s 128 (s 68A of the Companies (NSW) Code 1981 (NSW) (the Code)) and concluded (at pp 157-158), in answer to the question postulated as to whether, if s 68A of the Code did not apply, reliance could be placed on the rule in Turquand's Case to meet a denial as to the formation of the contract on the ground of an irregularity in the internal management of the company, that:
… In a case such as the present, where the question propounded by the applicant is whether a legislative requirement had been satisfied at a particular date by what was put forward as the act of a company, and where the point is taken against the company and the party dealing with the company by a third party in proceedings to which all of them are joined, in my view the company and the party dealing with it may, in those proceedings, claim the benefit of the rule in Turquand's case to support their case that what took place did comply with the relevant legislative requirement.
Mr Ng submits that, even if the rule in Foss v Harbottle were to be overcome by the plaintiffs and they were then to submit that the statutory assumptions do not assist the proposed additional defendants by reason of the circumstance that neither plaintiff is Felan's, the general law indoor management rule would nonetheless be an insuperable impediment to the viability of their claim against those additional defendants.
I consider that there is force to the submissions made for the existing and proposed additional defendants to the effect that the New Claim Amendments are beset with difficulties. The plaintiffs clearly would not have standing to bring a claim on behalf of Felan's to set aside the Deed of Settlement or Consent Order for lack of authority and to restore to Felan's any shares transferred pursuant to the Deed of Settlement. As noted earlier, Mr Doyle Gray adamantly disavows that the claim here sought to be made by the plaintiffs is in respect of a cause of action for which Felan's is the proper plaintiff, but the fact that the relief seems presently to be limited to the setting aside of the Deed of Settlement or Consent Order (and does not at this stage include any claim by the plaintiffs for equitable compensation or damages) is somewhat telling in this respect. The submissions based on the indoor management rule (if, as Mr Doyle Gray submits, it is not open to the existing or proposed additional defendants to rely on the assumptions provided under s 129(5)) also seem to me to have merit.
As to the implied or ostensible authority of a solicitor who is the solicitor on the record in proceedings when executing consent orders of the kind here handed up to Black J, there can be no serious dispute. True it is that there are cases (to which Mr Doyle Gray referred in general - see T 68, without reference to any specific cases) where solicitors have been held personally responsible for the costs of proceedings when purporting to act for a corporation when it has transpired there has not been actual authority conferred on the solicitor to conduct those proceedings but that is not here to the point. What the defendants argue is that they were entitled to rely upon the implied or ostensible authority of Mr Fraser in executing the Consent Order and, as a matter of the Court's discretion (particularly having regard to the principle of finality of litigation), such an order once perfected by its formal entry as part of orders finally disposing of the proceedings should not be set aside.
In that regard, the argument by Mr Doyle Gray was that the question of authority was critical:
… A person cannot, absent authority, alter records which describe themselves in the ASIC register as the sole director and sole shareholder, sign a document and then say the defendants or the parties with whom I signed the documents say 'well we relied on the indoor management rule and we relied on section 127 of the Corporations Act and now the true owners come along, they can't set aside that transaction'. That's simply absurd. There is no scope in that analysis for a wrongdoer, as is claimed here, deliberately creating documents to give the appearance that he has authority and he does so wrongly in breach of his fiduciary duty. Section 128 of the Corporations Act doesn't apply to Mr Galati. [T 68.14ff]
and:
The person who settled the proceedings was not Mr Fraser. The person who purported to settle the proceedings was Mr Deans and he did so by signing a deed. It is a furphy to talk about Mr Fraser's authority. Mr Fraser's authority can be no better than Mr Deans. It can't be any better. [T 68.4ff]
It is not necessary here to reach any concluded view as to those matters (and, given the context in which they were argued, it is preferable that I do not) because I have reached the view that the filing of the proposed amended pleading containing the New Claim Amendments would be an abuse of process for the reasons identified by Mr Hewitt in his submissions. Hence, whether or not a tenable claim of the kind here postulated could be raised by the plaintiffs for the setting aside of the Deed of Settlement and Consent Order, I am not persuaded that in all the circumstances leave should now be granted for such a claim to be pressed where it would operate oppressively to the proposed additional defendants.
I address those abuse of process submissions as follows.
Mr Hewitt submits that the claims sought to be made in relation to the 2015 Proceedings are an abuse of process in that they amount to an attempt to re-litigate a claim that was finally determined by the orders made in the 2015 Proceedings; and that leave should be refused on the grounds of the plaintiffs' delay in failing to take any steps in relation to concerns as to the composition of the board of Felan's and the conduct of the 2015 Proceedings prior to the filing on 29 June 2018 of the notice of motion dated 28 June 2018.
In particular, Mr Hewitt submits that the Courts "must be astute to protect litigants and the system of justice itself against abuse of process" (citing the decision of the High Court in UBS AG v Tyne [2018] HCA 45 at [45]), noting that abuse of process provides grounds for a pleading or part of a pleading to be struck out (see UCPR r 14.28(1)(c)). SFM argues that abuse of process principles may be invoked to prevent attempts to litigate a claim that should have been litigated in earlier proceedings as well as attempts to re-litigate a claim that has been determined (citing UBS AG v Tyne at [39], where reference was made to Aon at [33]).
The submission that the plaintiffs' claims in relation to the settlement of the 2015 Proceedings are an abuse of process focusses on the consequences of an order setting aside the orders that finally disposed of those proceedings back in November 2017. It is submitted that the implication of the plaintiffs' claim in that regard is that the parties should revert to the position in which they were back on the eve of a three week trial in November 2017 "so that SFM can then be required to defend those proceedings, this time against Felan's with a different instructing solicitor obtaining instructions from a different director or officer" (SFM's submissions at [30]).
That this is the necessary consequence or inference to be drawn from the plaintiffs' claim for relief setting aside the Deed of Settlement and Consent Order can be seen from the plaintiffs' own submissions. Although Mr Doyle Gray submitted (see T 67.31) that whether there would be a return to the position prior to the Deed of Settlement or an order for equitable compensation would fall to be determined at the conclusion of the proceedings, it is relevant here to note that there is at present no claim for relief by way of equitable compensation - simply a claim for the setting aside of the Deed of Settlement and Consent Order.
Mr Doyle Gray made it clear, by reference to what was said in a letter exhibited to Mr Deans' affidavit (Ex 1 at p 101) (in which complaint was made back in 2016 that Mr Galati had not been consulted in relation to instructions about discontinuing or dismissing the proceedings and expressing concerns at the steps taken about a then proposed settlement; and in which reference was made to Mr Galati's asserted ownership interest in Felan's and it was requested that he have an ongoing role in providing instructions), that the case that Mr Galati now seeks to bring is that:
He was excluded from control of the proceedings. He was excluded from the settlement. He was there standing with his chequebook ready to be involved and he was excluded. [T 71.10ff]
(See the letter dated 6 October 2016 from Addisons to Fraser Clancy - at pp 101-102 of Ex 1 to Mr Deans' affidavit, which related to the question whether security for costs would be paid to continue the proceedings against various of the parties to the 2015 Proceedings.)
At T 75, Mr Doyle Gray submitted that:
If the case is viewed as Mr Galati's loss and the shares are available to be restored to Felan's, then the Court ought to consider granting the injunction in the second notice of motion. [my emphasis]
The plaintiffs maintain that they are not seeking to maintain a cause of action for which Felan's is the proper plaintiff and that they are seeking the orders for the setting aside of the Deed of Settlement and Consent Order as relief that would be available if they establish the breach of fiduciary duty alleged against Mr Deans and FDC.
However, it seems clear that the effect of obtaining relief of that kind would be to force the parties to the litigation that was finally disposed of by consent in 2017 now to face the prospect of revisiting the claims made in those proceedings, and the making of such an order would also affect third parties who have acquired an interest in the shares (whether the transfers have yet been registered or not) pursuant to the sale regime contemplated under the Deed of Settlement.
SFM argues that the evidence demonstrates that: from 2015, Mr Galati was "aware of and approved the commencement and prosecution" of the 2015 Proceedings (Mr Galati's affidavit at [1]); Mr Galati and Mr Deans gave instructions to Mr Fraser "who was the solicitor for the plaintiff, Felan's Fisheries Pty Ltd" (Mr Galati's affidavit at [1]); at all times, Mr Fraser conducted the 2015 Proceedings on behalf of Felan's (Mr Webster's affidavit at [6]); on 9 November 2017, the Deed of Settlement was signed by Mr Deans as sole director and secretary of Felan's (Mr Webster's affidavit at [9]); as at 9 November 2017, the information available to the public from ASIC recorded that Mr Deans was the sole director and secretary of Felan's (Mr Glinatsis' first affidavit, Annexure E, pp 75-78); and on 10 November 2017, orders were made dismissing the 2015 Proceedings based on consent orders that were signed by Mr Fraser (Mr Webster's affidavit at [10]).
SFM submits that the plaintiffs' attempt "to force SFM to re-litigate the claims that were resolved by the orders made in the 2015 Proceedings" is an abuse of process; and that SFM would be subjected to "unjustifiable oppression" in the form of the significant delay in the resolution of the 2015 Proceedings and the inevitability of increased costs if it were required to defend the 2015 Proceedings for a second time in light of the above matters (adopting the language in UBS AG v Tyne at [58]).
Finally, SFM submits that the plaintiffs' delay in raising concerns as to the persons with authority to conduct and give instructions on behalf of Felan's in relation to the 2015 Proceedings is further grounds for the refusal of leave to amend. In this regard it is noted that: on 8 December 2015, Mr Pho wrote to Mr Fraser advising him that he was "not authorised to act on behalf of the company further without the consent of the Board given in writing" (see Ex 6D-1) which was tendered by Mr Hewitt on the amendment application); as noted earlier, according to ASIC records Mr Pho was removed as a director on 26 February 2016 (see pleading at [41]); Mr Galati was aware from 2015 that Mr Fraser was conducting the 2015 Proceedings on behalf of Felan's and obtaining instructions from Mr Deans (Mr Galati's affidavit at [1]); Mr Galati was informed that the 2015 Proceedings had settled on 22 December 2017 (Mr Galati's affidavit at [4]); and the notice of motion seeking leave to file and serve the amended statement of claim was filed in late June 2018.
It is submitted that it was apparent to the plaintiffs (and Mr Pho) throughout 2016 and 2017 that Mr Fraser was conducting the 2015 Proceedings on behalf of Felan's on instructions from Mr Deans and that, if the plaintiffs (or Mr Pho) were concerned about the conduct of the 2015 Proceedings without authority, then that issue should have been raised at the time so that it could have been addressed before the 2015 Proceedings were resolved. It is submitted that, at the very latest, Mr Galati should have raised any concerns promptly after becoming aware on 22 December 2017 that the 2015 Proceedings had settled; and that he did not do so. In circumstances where the process for the sale of Felan's shares in Buyers (as required under the terms of the Deed of Settlement) has commenced, it is submitted that the plaintiffs' delay is unacceptable and is a further ground for refusing leave to amend.
As indicated above, I accept Mr Hewitt's submissions as to abuse of process. It is clear that Mr Galati and TA were aware from as early as February 2016 that there were proceedings on foot involving Felan's and that there was the possibility of settlement of those proceedings (see the correspondence referred to in Mr Barham's oral submissions from T 28ff). Mr Galati (and through him TA) was also aware that Mr Deans was providing instructions to Mr Fraser in relation to the proceedings.
Mr Galati and TA, for whatever reason (and whether badly advised or otherwise), did nothing to draw to the attention of Mr Fraser any issue in the period leading up to the mediation and ultimate settlement of the proceedings as to the scope of his authority to represent Felan's in the litigation (other than the making of the complaint at a much earlier time when the discontinuance of the proceedings for lack of funding was in contemplation); still less did they do anything to draw to the attention of the parties who ultimately entered into the Deed of Settlement with Felan's any limit on Mr Fraser's authority or any lack of authority on the part of those instructing Mr Fraser to represent Felan's. It is beside the point that it may then have been moot whether Mr Galati could "wrest control" of the proceedings from Mr Deans (as Mr Doyle Gray submitted - see T 90.47); the relevant issue is whether anything was done to alert anyone dealing with Mr Fraser, the solicitor on the record for Felan's, that there might be a challenge to his authority to act for the company or to Mr Deans' authority to instruct Mr Fraser on behalf of Felan's.
In UBS AG v Tyne, in considering the power permanently to stay proceedings as an abuse of the process of the court, Kiefel CJ, Bell and Keane JJ noted that either of two conditions enlivens the power: namely, where the use of the court's procedures occasions unjustifiable oppression to a party or where the use serves to bring the administration of justice into disrepute (see at [1]); and observed that the varied circumstances in which the use of the court's processes (notwithstanding that the use is consistent with the literal application of its rules) will amount to an abuse of process do not lend themselves to an exhaustive statement. At [7], their Honours said:
Whether conduct of this description rises to the level of an abuse of the processes of the court is a determination that requires consideration of all the circumstances. As Lord Bingham of Cornhill explained [in Johnson v Gore Wood & Co [2002] 2 AC 1 at 31], that consideration requires the court to make:
"a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not."
In the first instance judgment under appeal in UBS AG v Tyne, the primary judge had considered that to permit the claims to go forward (some time after proceedings in relation to those claims had been discontinued) would visit manifest unfairness on UBS by reason of the "significant delay in resolving the dispute, increased costs, and the inconvenience of having to deal with the matter again after lengthy litigation", and would be an abuse of process (see as recounted by Kiefel CJ, Bell and Keane JJ at [33]).
In the present case, the setting aside of the Deed of Settlement and Consent Order must carry with it the very real spectre of the re-opening of the litigation that had been resolved in 2017. The delay involved would include the time that it would take for a revived claim to be prepared for hearing and then determined. Although Mr Doyle Gray submitted that there was no evidence of any prejudice from delay in the present case, he accepted that there would be presumptive prejudice of the kind recognised in cases such as Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 552-553; [1996] HCA 25 (McHugh J); Weston v Publishing and Broadcasting Ltd (2012) 88 ACSR 80; [2012] NSWCA 79 at [173] (Sackville AJA, with whom Campbell and Young JJA agreed); Tamaya at [183] (Gleeson J); Bishopsgate Insurance Australia Ltd (in liq) v Deloitte Haskins & Sells [1999] 3 VR 863 at [60]; and Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2004] NSWSC 1219 at [70]); though I do not suggest that the delay in the present case is of the order considered in those decisions.
There wouId also inevitably be increased costs in the parties now instructing legal representatives afresh (whether the same or other legal representatives) to conduct the proceedings that were, a year ago, literally on the cusp of being heard; and the inconvenience involved in "downing tools", so to speak, back in 2017 and now being required to pick them up again. That, to my mind, would both occasion unjustifiable oppression to the parties to the 2015 Proceedings and serve to bring the administration of justice into disrepute.
I consider it to be inconsistent with the principle of finality of litigation (and antithetical to the statutory mandate for the just, quick and cheap resolution of the real issues in dispute) that a year after contested litigious proceedings were settled, with formal consent orders being made, the plaintiffs should be permitted to raise issues that they chose not to raise at the time (the authority of Mr Deans to give instructions to the solicitor on the record) and did not seek to raise until the filing of the notice of motion some six months after they had become aware of the fact that the proceedings had been settled.
I should note that refusing leave to allow the New Claim Amendments (and the joinder of the proposed additional defendants) would not preclude the plaintiffs from seeking relief against the first and/or second defendants by way of equitable compensation for breach of fiduciary duty (if that can be made out) or damages for breach of the alleged partnership or joint venture agreement (or any other applicable relief) against the first and second defendants. It simply recognises that it would be unjustifiably oppressive for parties to litigation that was settled (in colloquial terms) on the doors of the court now a year later to be required to incur the costs and expense of resuming the conduct of that litigation; particularly after steps have been taken for (and no doubt costs incurred in) performance of the obligations imposed on the parties to that Deed of Settlement. The time for the plaintiffs to challenge the compromise of those proceedings has long since passed in my opinion and it would undermine the integrity of the Court to permit the plaintiffs now to do so.