MARTIN BRUCE JONES As Liquidator of HL DIAGNOSTICS PTY LTD (in liq)

ANDREW JOHN SAKER As Liquidator of HL DIAGNOSTICS PTY LTD (in liq)

DARREN GORDON WEAVER As Liquidator of HL DIAGNOSTICS PTY LTD (in liq)

Practice and procedure - Purported discontinuance of proceedings - Proceedings commenced by originating process - Whether plaintiff required leave to discontinue proceedings - Whether the affidavits filed on behalf of the first defendant constitute a defence - Whether there is a "point of no return" in an action commenced by an originating process - Whether it is appropriate to grant discontinuance on terms that the plaintiff undertake not to bring any subsequent proceedings

Corporations (Ancillary Provisions) Act 2001 (WA), s 23

Corporations Act 2001 (Cth), ss 502, 503

Interpretation Act 1984 (WA), s 44(1)

Supreme Court (Corporations) (WA) Rules 2004 (WA), rr 1.3, 1.8, 2.2, 2.3, 2.4, 2.7, 2.9

Supreme Court Act 1935 (WA), s 4

Plaintiff's attempts to discontinue proceedings without leave ineffective

1 MARTIN CJ: The plaintiff, Heartlink Ltd (Heartlink), has purported to discontinue the proceedings by filing a Notice of Discontinuance without the leave of the Court. The first defendants, Martin Bruce Jones, Andrew John Saker and Darren Gordon Weaver (the liquidators) assert that Heartlink requires the leave of the Court to discontinue the proceedings, and that Heartlink's purported discontinuance of the proceedings is therefore ineffective.

2 The parties exchanged submissions in relation to the issue of whether Heartlink's purported discontinuance of the proceedings is effective. Those submissions also foreshadow issues relating to the terms upon which the Court should grant leave to discontinue the proceedings, if such leave is required. Heartlink and the liquidators have agreed that the Court can and should determine the question of the effectiveness of Heartlink's purported discontinuance of the proceedings by reference only to the submissions that have been filed, and without need for oral argument. These are my reasons for concluding that Heartlink's purported discontinuance of the proceedings is ineffective, because the prior leave of the Court was required. I will also include within these reasons some tentative views as to the terms upon which leave to discontinue should be granted, in the event that Heartlink applies for leave.

3 In order to set the context for the issues that have arisen in relation to the effectiveness of Heartlink's purported discontinuance of the proceedings, it is necessary to briefly trace the history of the proceedings to date.

4 The proceedings were commenced by originating process filed by Heartlink on 12 March 2007. The proceedings were commenced by Heartlink against the liquidators as the first defendants, and also against the company which they are liquidating, namely, HL Diagnostics Pty Ltd (in liq) (HLD) as the second defendant.

5 In the originating process, Heartlink seeks an order pursuant to s 503 of the Corporations Act 2001 (Cth) for removal of the liquidators and for the appointment of other persons as liquidators on the grounds that:

1. The Liquidators are not carrying out the Liquidation to the general advantage of the persons interested in the winding up.
2. The Liquidators' conduct with respect to a potential purchaser of the assets of HLD (namely IFEM-CTAC (a Company incorporated in the British Virgin Islands)) (IFEM) in order to secure the sale to IFEM of assets over which the applicant has pre-emptive rights was:

(a) reckless or negligent;

(b) not bona fide; and

(c) in breach of duties to the creditors.

1. The Liquidators failed to prevent or investigate the assignment of a registered Charge over HLD's assets from The University of Western Australia to IFEM.
2. The Liquidators wilfully or recklessly caused HLD to breach its contract with the plaintiff.
3. The Liquidators failed to disclose a document that the Court found to be a material document and should have been disclosed to the applicant.
4. It is in the interests of creditors, shareholders and contributories that the Liquidators be removed.
5. Shaun Robert Fraser and Joseph David Hayes have consented to being appointed official liquidators of HLD.
6. The Liquidators, without good reason have failed to exercise powers to investigate the full extent of HLD's interest in the Technology (as defined in the affidavit of M Ruane sworn 13 March 2007) including failing to properly investigate the corporate structure of companies interested in the Technology and the ownership interests of such companies in the Technology.
7. The Liquidators, without good reason, have persisted in their failure to exercise powers to investigate the matters referred to in the preceding ground notwithstanding evidence that HLD may have valuable interests in such Technology which require protection.

6 The originating process was supported by an affidavit of Michael Ruane sworn on 12 March 2007. That affidavit incorporates by reference affidavits sworn by Mr Ruane on 13 February and 12 March 2007 in another action in this Court, namely, CIV 1133 of 2007. In those three affidavits, Mr Ruane deposes extensively to the facts, which Heartlink asserts sustain the grounds for removing the liquidators. The annexures to those affidavits are voluminous.

7 Heartlink's application for removal of the liquidators was also supported by an affidavit sworn by Claude Solitario on 12 March 2007, and an affidavit of a solicitor, Bree Shilkin, sworn 14 March 2007.

8 Heartlink's originating process came before Templeman J on 16 March 2007 for directions. His Honour directed that the liquidators file and serve any affidavits in opposition to the application for their removal by 4 pm on Monday, 2 April 2007, and that Heartlink file and serve any affidavits in reply to those affidavits by 4 pm on Monday, 20 April 2007. His Honour further directed that the application be listed for hearing on a date to be fixed, and granted liberty to apply.

9 A memorandum of consent orders varying the timetable for the filing and service of further affidavits and executed by the solicitors for Heartlink and the solicitors for the liquidators, was filed on 10 April 2007. However, it seems that no orders were made in those terms before the matter came before me for the making of further directions on 20 April 2007. In the meantime, further affidavits sworn by Mr Ruane and Mr Solitario had been filed by Heartlink in support of the application for removal of the liquidators.

10 On 20 April 2007, I directed that the liquidators and HLD file and serve any affidavits upon which they proposed to rely in opposition to the application by 14 May 2007. I further directed that the liquidators and HLD give notice of any objections to the affidavits upon which Heartlink proposed to rely by the same date. I made further directions for the preparation of a trial bundle. I also directed that Heartlink file and serve any affidavits in reply to those filed by the liquidators or HLD, together with an outline of submissions in support of its application, and notice of objection to any of the affidavits upon which the liquidators or HLD proposed to rely by 22 June 2007. I made a further direction that the liquidators and HLD file an outline of submissions and list of authorities by 6 July 2007, and adjourned the matter for further directions on 26 June 2007. The clear purport of those directions was to take the matter to the point where it could be listed for hearing.

11 On 17 May 2007, the liquidators filed an affidavit sworn by Martin Bruce Jones on that day in opposition to the application for their removal. That affidavit contains 188 paragraphs responding in detail to the allegations made in the affidavits that had been filed by Heartlink in support of its application. The annexures to Mr Jones' affidavit are voluminous.

12 On 17 May 2007, the liquidators also filed a schedule of objections to the admissibility of a number of paragraphs in the affidavits that had been filed by Heartlink in support of its application.

13 On 24 May 2007, the solicitors for Heartlink and the liquidators filed a memorandum which they had executed consenting to an order that Heartlink give security for the liquidators' costs of the proceedings in the sum of $25,000 by payment of that amount into court, and that in the meantime, all further proceedings be stayed. I made orders in those terms on that day.

14 Heartlink paid $25,000 into court on 6 June 2007.

15 On 22 June 2007, the solicitors for Heartlink and the liquidators filed a memorandum which they had both executed consenting to orders varying the timetable for the preparation of the trial bundle and for the service of affidavits by Heartlink in reply to those served by the liquidators. On 19 July 2007, I made orders further varying the timetable by specifying that Heartlink file and serve any affidavits in reply to the affidavit filed on behalf of the liquidators, together with notice of any objection to the affidavit filed on behalf of the liquidators, by 15 August 2007. I made a further order giving the liquidators until 29 August 2007 to file any affidavits in reply to those filed by Heartlink. I made further directions in respect of conferral between the representatives regarding objections to admissibility of the affidavit material, and for the filing of outlines of submissions and lists of authorities. Again, the clear purport of those directions was to manage the proceedings to the point where they could be listed for hearing. The directions hearing was adjourned to 26 September 2007.

16 On 3 September 2007, Heartlink filed a document entitled "Notice of Discontinuance" in the following terms:

TAKE NOTICE THAT the plaintiff wholly discontinues this proceeding against all defendants.

17 As I have observed, this document was not filed with the leave of the Court. The parties require the Court to determine the effectiveness of this Notice, given the liquidators' contention that leave was required before it could be filed.

Was the Notice of Discontinuance effective?

18 Section 23 of the Corporations (Ancillary Provisions) Act 2001 (WA) empowers the Court to make rules of court in respect of proceedings, and the practice and procedure, of the Court in respect of proceedings brought under the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth), and the regulations made under those Acts. That power was exercised when the Court made the Supreme Court (Corporations) (WA) Rules 2004 (WA) (the Corporations Rules), which came into operation on 1 June 2004. Rule 1.3 of those Rules provides:

1.3(1) Unless the Court otherwise orders, these rules apply to a proceeding in the Court under the Corporations Act, or the ASIC Act, that is commenced on or after the day on which these rules came into operation.

(2) The Rules of the Supreme Court 1971 apply, so far as they are relevant and not inconsistent with these rules, to a proceeding in the Court under the Corporations Act, or the ASIC Act, that is commenced on or after the day on which these rules came into operation...

19 As Heartlink's originating process asks the Court to exercise the power to remove a liquidator and appoint another in his or her place, conferred upon the Court by ss 502 and 503 of the Corporations Act, these proceedings are plainly within the scope of the Corporation Rules_._

20 Rule 1.8 of the Corporation Rules empowers the Court to give directions in relation to the practice and procedure to be followed in a proceeding if it is satisfied that the provisions of the rules "do not adequately provide for the practice and procedure to be followed" (r 1.8(a)), or, if "a difficulty arises, or doubt exists, in relation to the practice and procedure to be followed in the proceeding" (r 1.8(b)). Heartlink did not ask the Court to exercise that power prior to filing the Notice of Discontinuance.

21 Rule 2.2 of the Corporation Rules provides that unless these rules otherwise provide, applications required or permitted to be made by the Corporations Act are to be made by filing an originating process "if the application is not made in a proceeding already commenced in the Court."

22 Rule 2.4(1) provides that unless the Court otherwise directs, an originating process "must be supported by an affidavit stating the facts in support of the process."

23 Rule 2.3 provides that the Principal Registrar is to "fix a time, date and place for hearing" on the originating process and "seal a sufficient number of copies for service and proof of service."

24 Rule 2.7 requires service of an originating process to be effected "[a]s soon as practicable" and "at least 5 days before the date fixed for hearing."

25 Rule 2.9 requires a person who attends to appear before the Court at the hearing of an application to file a notice of appearance before appearing, and to serve a copy of that notice on the plaintiff.

26 The remaining provisions of the Corporations Rules are essentially directed to particular types of proceedings brought under the Acts to which the Rules relate. There are no specific provisions relating to proceedings brought pursuant to s 503 of the Corporations Act. It follows that the processes and procedures to be followed by the Court after the date upon which the matter is listed for first hearing, and which will ordinarily be a mention date, is to be left to the general power of the Court to control and direct its proceedings, augmented by the specific powers conferred upon the Court by Rule 1.8, and the Rules of the Supreme Court 1971 (WA) (Rules of Court), "so far as they are relevant and not inconsistent with the [Corporations Rules]" (r 1.3(2)).

27 The Corporations Rules make no provision for discontinuance of proceedings brought pursuant to those Rules. That topic is, however, addressed by O 23 of the Rules of Court. Order 23 rule 2 provides, relevantly:

Plaintiff may discontinue: defence may be withdrawn

(1) The plaintiff may, at any time before receipt of the defendant's defence, or after the receipt thereof before taking any other step in the action, by notice in writing, wholly discontinue his action against all or any of the defendants or withdraw any part or parts of his alleged cause of complaint, and thereupon he shall pay such defendant's costs of the action, or, if the action be not wholly discontinued, the costs occasioned by the matter so withdrawn.

(2) The costs referred to in paragraph (1) shall be taxed, and such discontinuance or withdrawal, as the case may be, shall not be a defence to any subsequent action.

(3) Save as in this Rule otherwise provided, it shall not be competent for the plaintiff to withdraw the record or discontinue the action without leave of the Court, but the Court may before, or at, or after the hearing or trial, upon such terms as to costs, and as to any other action, and otherwise, as may be just, order the action to be discontinued, or any part of the alleged cause of complaint to be struck out.

(4) The Court may, in like manner, and with the like discretion as to terms, upon the application of a defendant, order the whole or any part of his alleged grounds of defence or counterclaim to be withdrawn or struck out, but it shall not be competent to a defendant to withdraw his defence or counterclaim, or any part thereof, without such leave.

28 It will be observed that O 23 r 2 is concerned with an "action". That word is not defined by the Rules, but is defined by s 4 of the Supreme Court Act 1935 (WA). By virtue of s 44(1) of the Interpretation Act 1984 (WA), the word "action" when used in the Rules, is to have the same meaning as given to it by s 4 of the Supreme Court Act. That section defines "action" to mean:

a civil proceeding commenced by writ or in such other manner as may be prescribed by rules of court, but does not include any criminal proceeding

29 The proceedings brought by Heartlink are civil proceedings commenced in such manner as is prescribed by the Corporations Rules, which are, of course, rules of court, and therefore fall within the meaning of the word "action", when used in O 23.

30 Both parties submit that O 23 applies to these proceedings because it is relevant and not inconsistent with the Corporations Rules. I accept that proposition, which is plainly correct.

31 Heartlink submits that it is entitled to discontinue these proceedings without the prior leave of the Court pursuant to O 23 r 2(1) because no defence has been filed or served by any of the defendants to the proceedings. It submits that O 23 establishes a "point of no return" after which the leave of the Court is required prior to discontinuance. Heartlink submits that the "point of no return" is the receipt of the defendants' defence and because, in this case, there will be no exchange of pleadings and therefore no defence, these proceedings have not reached the "point of no return". In the alternative, it submits that if the general concept of "point of no return" is applicable to its originating process, the filing of an affidavit in opposition to that originating process is not analogous to a defence.

32 The liquidators submit that O 23 r 2(1) only applies to actions in which there is to be an exchange of pleadings, and therefore has no application to these proceedings. They submit that O 23 r 2(3) therefore applies, with the consequence that Heartlink cannot discontinue without prior leave of the Court. It submits in the alternative that if, contrary to its primary submission, O 23 r 2(1) does apply, then, by analogy, a "defence" has been filed in the form of the affidavit in opposition to Heartlink's application.

33 Rules of court providing for the discontinuance of proceedings emerged in England in the latter part of the 19th century. They replaced more antiquated processes of abandonment and the judgment of non-suit. Under the latter process, a plaintiff could elect to be non-suited, and could then bring a fresh action for the same subject matter - see, for example, Fox v Star Newspaper Co Ltd [1898] 1 QB 636 (decision affirmed in Fox v Star Newspaper Co Ltd [1900] AC 19).

34 This change in practice in England was effected by the introduction of O 26 of the Rules of the Supreme Court 1883 (UK). Order 26 r 1 of those Rules is in virtually identical terms to O 23 r 2 of the Rules of this Court (see The Ardandhu (1886) Law Rep 11 PD 40 at 42, fn 3 for an excerpt of the 1883 Rules).

35 In referring to that part of the English O 26 r 1 which would permit discontinuance without leave of the Court, in the Encyclopaedia of the laws of England with forms and precedents (2nd ed, vol 4, 1907) 600, the authors observed:

This provision applies only to an action commenced by writ, for it is only in such an action that a defence can be delivered.

36 The authors cite the decision in Re Dyson's Trademark (1891) 65 LT 488 in support of that proposition. Although somewhat obscure, the decision in that case does appear to presume that discontinuance without leave could only occur in actions commenced by writ.

37 So, the construction of O 23, for which the liquidators contend, appears to have been accepted as the proper construction of the identical earlier English rule for more than a century.

38 The effect and operation of the English O 26 was also considered in Fox v Star Newspaper Co Ltd [1898] 1 QB 636. Chitty LJ, who was justly renowned for his expertise in procedural matters, made the following observations in relation to the English rule (at 639):

It seems to me that Order XXVI, is intended to form a complete code applicable to the whole subject of discontinuing an action ... The principle of the rule is plain. It is that after the proceedings have reached a certain stage the plaintiff, who has brought his adversary into court, shall not be able to escape by a side door and avoid the contest ... The substance of the provision is that, after a stage of the action has been reached at which the adversaries are meeting face to face, it shall only be in the discretion of the judge whether the plaintiff shall be allowed to withdraw from the action so as to retain the right of bringing another action for the same subject-matter.

39 This approach to the interpretation of O 23 also sustains the liquidators' alternative submission to the effect that the Rules should be construed as precluding discontinuance without leave once the parties have joined issue - whether by service of a defence or other process, such as the exchange of affidavits.

40 The specific application of that general principle to different forms of originating action is demonstrated by the form of the Rules of the Supreme Court 1965 (UK) relating to discontinuance in force in 1991. Pursuant to O 21 r 2 of those rules, the plaintiff in an action begun by writ could, without leave of the court, discontinue the action at any time not later than 14 days after service of the defence. By the same rule, the plaintiff in an action begun by originating summons could, without leave of the court, discontinue the action at any time not later than 14 days after service of the defendant's affidavit evidence (r 2(3A)). So, that Rule draws a quite clear analogy between the service of a defence in an action begun by writ, and the service of affidavits in opposition in an action begun by another originating process, in which pleadings are not to be exchanged. That analogy appears to me to be entirely apt, and if applied to a more general construction of O 23, would lead to the conclusion that Heartlink could not discontinue without prior leave of the Court even if O 23 r 2(1) applied. However, the basic reason O 23 r 2(1) does not apply to this case is because that paragraph of the rule only applies to actions in which pleadings are to be exchanged, and this is not such an action.

41 The requirement for prior leave of the court prior to discontinuing any proceeding in which pleadings are not to be exchanged also accords with my experience of practice in this court, and is evident in cases such as Pharmaust Ltd v Advance Healthcare Group Ltd [2007] WASC 125.

42 For these reasons I conclude that it was not competent for Heartlink to discontinue the action without the prior leave of the Court, and its purported Notice of Discontinuance was therefore ineffective.

The terms upon which leave might be granted

43 Heartlink has not applied for leave to discontinue these proceedings. Accordingly, any final determination of the terms upon which leave to discontinue should be granted would be premature. However, the parties have addressed this topic in the written submissions which they have exchanged, and it may assist the further disposition of these issues if I express some tentative views in relation to the propositions which have been advanced. I emphasise, however, that these views are tentative only, and that I remain open to persuasion to the contrary in the context of an application by Heartlink for leave to discontinue.

44 The liquidators submit that leave to discontinue should only be given to Heartlink on condition that it proffer an undertaking that Heartlink will not assert in any subsequent proceedings any of the "causes of action" identified in grounds 1 - 6, 8 and 9 of the grounds upon which Heartlink sought the removal of the liquidators. It is not at all clear to me what "cause of action" is intended to mean in this context, because plainly a number of the assertions made in the grounds particularised by the liquidators would not sustain independent causes of action but would only sustain an application for removal of the liquidators (for example, grounds 1, 5, 6, 8 and 9). I therefore assume that what the liquidators propose is that Heartlink should be required to undertake not to advance any of the allegations made in the particularised grounds in any subsequent proceedings.

45 It is clear that the court has power to impose conditions, or to require an undertaking, as a term of the grant of leave to discontinue - see for example, Robertson v Purdey [1906] 2 Ch 615; Heimann v Commonwealth of Australia (1941) 58 WN (NSW) 2 and Visy Board Pty Ltd v Attorney-General (Cth) [1984] FCA 52; (1984) 2 FCR 113 at 182. The conditions upon which leave can be granted might include an undertaking not to commence subsequent proceedings or assert particular causes of action in subsequent proceedings - see Heimann v Commonwealth of Australia; Visy Board.

46 However, Graham J also established in Covell Matthews & Partners v French Wools Ltd [1977] 1 WLR 876; [1977] 2 All ER 591 at 594 (decision affirmed in Covell Matthews & Partners v French Wools Ltd [1978] 1 WLR 1477; (1978) 2 All ER 800) that:

The court will, normally, at any rate, allow a plaintiff to discontinue if he wants to, provided no injustice will be caused to the defendant. It is not desirable that a plaintiff should be compelled to litigate against his will. The court should therefore grant leave, if it can, without injustice to the defendant, but in doing so should be careful to see that the defendant is not deprived of some advantage which he has already gained in the litigation and should be ready to grant him adequate protection to ensure that any advantage he has gained is preserved.

47 Similarly, in Visy Board, Sheppard J observed (at 182) that:

If a party seeks to discontinue proceedings, a court should, in my opinion, lean towards giving him leave unless to do so will cause manifest injustice to his opponent.

48 Accordingly, applying these principles, the question to be determined, if and when an application for leave to discontinue is made by Heartlink, is whether any particular terms or conditions should be imposed in order to prevent manifest injustice to, or the loss of some advantage by, the liquidators.

49 Tentatively applying that question to the issues which have been raised by the parties, I can readily accept that it would be unjust to the liquidators if their appointment as liquidator was to remain open to question by Heartlink after Heartlink had put that appointment in question and pressed proceedings to the point where they were almost ready to be heard. Accordingly, I am tentatively of the view that it would be appropriate to require Heartlink to undertake, as a condition of the grant of leave to discontinue, that it would not commence further proceedings seeking the removal of the liquidators. I understand from the submissions which have been filed that Heartlink is prepared to proffer such an undertaking.

50 In relation to the further undertakings sought by the liquidators, it is, I think, pertinent to observe that the only issue that would have been finally and authoritatively determined by these proceedings, had they continued, is the question of whether or not the liquidators should remain in office. Although allegations have been made as to the conduct of the liquidators which, if established, could sustain other causes of action, it would not be necessary or appropriate for a court deciding whether or not the power conferred by s 503 of the Corporations Act should be exercised to determine whether, for example, a cause of action in negligence had been made out. The only question which the court would be required to determine, and therefore which it could authoritatively determine, would be the question of whether the liquidators should remain in office.

51 Accordingly, it seems to me, tentatively, that the further undertakings which the liquidators seek would give them an advantage which they could never obtain, even if these proceedings went to trial and were determined. While it is possible that Heartlink might be estopped from contesting some issues of fact in subsequent proceedings, if these proceedings were to run their course and be determined, it must be remembered that issue estoppel in respect of questions of fact can only arise in respect of ultimate facts or issues in contention - see Blair v Curran [1939] HCA 23; (1939) 62 CLR 464, 532; Mustac v Medical Board of Western Australia [2007] WASCA 128 at 58.

52 Accordingly, the only ultimate issues or facts in respect of which an issue estoppel would arise, would be the ultimate question of whether the liquidators were guilty of such misconduct as to justify their removal from office.

53 For these reasons, my tentative view is that it would not be appropriate to require Heartlink to give any undertaking, beyond an undertaking not to commence proceedings seeking removal of the liquidators from office, as a condition of the grant of leave.

54 In these observations I have not made any reference to the question of the costs of the proceedings because, as I would understand it, Heartlink accepts that it should be ordered to pay the liquidators' costs of the proceedings to be taxed - that, of course, being the automatic consequence of discontinuance without leave, being the course which it unsuccessfully attempted to follow.

55 For these reasons, in my view, Heartlink's attempt to discontinue these proceedings was not effective, and the proceedings remain on foot. If Heartlink applies for leave to discontinue these proceedings, tentatively, and, of course, subject to hearing further argument from the parties, I would be inclined to grant such leave on condition that Heartlink proffer an undertaking not to commence any subsequent proceedings seeking removal of the liquidators from office, and upon the further condition that Heartlink pay the costs of the liquidators and HLD of the proceedings to be taxed, including the costs of this issue and the application for leave to discontinue.