Hypec Electronics v Mead

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BARRETT J

WEDNESDAY, 6 FEBRUARY 2002 1268/02 - HYPEC ELECTRONICS PTY LIMITED v MEAD & ANOR

1 The plaintiff in these proceedings is a company in liquidation. By a statement of claim verified by affidavit of its liquidator, the plaintiff sues Mr Mead and Mrs Mead who are, or were formerly, husband and wife and who have been at all material times the only directors and shareholders of the plaintiff. 2 The plaintiff claims, in essence, that at various times between 1988 and 1992 the defendants, when directors of the plaintiff, bought various parcels of real property either with funds of the plaintiff or with the aid of loans which were later repaid using funds of the plaintiff. It is alleged that the properties in question therefore came to be held by the defendants on trust for the plaintiff and the plaintiff seeks declarations to that effect and orders compelling transfer of the properties to it by the defendants. 3 The first defendant has produced to the Court today a signed but as yet unverified defence of the first defendant, Mr Mead. By that defence, or proposed defence, the first defendant will seek to establish an estoppel against the plaintiff in such a way as to preclude departure by the plaintiff from what is said to be the position which it, through its liquidator, encouraged and permitted the first defendant to assume, namely, that the properties in question, or some of them, might, despite the plaintiff's claims, be sold and the proceeds applied in payment of certain legal costs incurred by the first defendant, this being as contemplated by certain orders of the Family Court in proceedings between the two defendants who, on the face of things, are the owners of the properties. 4 Now before the Court is a motion by the first defendant pursuant to Part 31 rule 2 that these issues of estoppel raised by the first defendant's defence be heard and determined separately from and prior to the hearing and determination of all other issues in the proceedings. 5 The motion arises in a context where, as I have said, the first defendant has incurred legal costs. Those costs are substantial and relate to proceedings which the first defendant has both instituted and defended on behalf of and for the benefit of the plaintiff pursuant to leave given following the winding up of the plaintiff. 6 The first defendant in that representative capacity vis a vis the plaintiff has apparently been successful in having set aside a default judgment for some $7.6 million against the plaintiff on which the successful winding up application in relation to the plaintiff was founded. He has also litigated in a sixteen day hearing in the Common Law Division that claim and a cross claim brought for the plaintiff by the first defendant. 7 The Family Court, as I have said, was content, from the perspective of the matrimonial disputes between the first defendant and the second defendant, for certain of the properties now in contention to be sold to cover the first defendant's costs of the common law proceedings. However, when that arrangement for sale of certain of the properties was well advanced, or at least auction preparations had been made and an auction date fixed, the plaintiff, through its liquidator, lodged caveats and in due course propounded the claims to the properties now articulated in the statement of claim in these proceedings, with the result that the proposed sale of the properties has not eventuated. 8 The main consideration advanced in support of the application for separate determination of the estoppel defence of the first defendant is that if that defence succeeds in relation to the properties the subject of the sale proposal, there will be a saving of time and effort in that it will not then be necessary for the issues of law and, I suppose, more significantly, the issues of fact about flow of funds and the like relevant to the plaintiff's trust claims in relation to those properties to be pursued. I should say that the properties affected by the sale proposal are three in number out of a total of seven claimed by the plaintiff. 9 It was put to me that the estoppel issues could be heard in one day and that the evidence would be largely documentary. It may be that the estimate of one day is over-optimistic although the time that would be taken with the estoppel issues is very likely to be less than that which would be taken up with the trust claims. Although it was said that the evidence would be largely documentary, it was also made clear that there would need to be some evidence in support of the estoppel claim from the first defendant himself. 10 The other point made concerns the burden that the first defendant will bear if he is not afforded some way of substantially reducing a debt of some $400,000 for legal costs he has incurred in connection with the proceedings in which he is involved on behalf of the company. 11 The major point put against the application is that in both what I might call the trust strand and the estoppel strand the first defendant will be a witness and, according to what has been said today on behalf of the plaintiff, his credit will be very likely attacked by the plaintiff so as to become a matter of genuine contest. 12 An application such as the present must be approached in the way described as follows by Giles J (when Chief Judge of the Commercial Division) in Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ASCR 130: "In the ordinary course, all issues in proceedings should be decided at the one time, but separate decision of a question may be appropriate where, for example, the decision of the question is critical to the outcome of the proceedings and (at least if decided in one way) will bring the proceedings to an end. In particular circumstances the separate decision of a question may be appropriate even if it will not bring the proceedings to an end, such as where there is a strong prospect that the parties will agree upon the result when the core of their dispute is decided or where the decision will obviate unnecessary and expensive hearing of other questions, but such occasions must be carefully controlled, lest fragmentation of the proceedings (particularly when the exercise of rights of appeal is borne in mind) brings delay, expense and hardship greater than that which the making of an order was intended to avoid. It is often the case that the need to make findings of fact for a decision of the separate question, especially findings which may involve issues of credit, tell strongly against the making of an order because related facts, and renewed issues of credit, will or may arise at a later stage in the proceedings. Experience teaches that it should be able to be seen with clarity that decision of a separate question will be beneficial in the conduct of the proceedings and the resolution of the parties' dispute". I must say that I regard those observations as consistent with the line taken by the Court of Appeal in CBS Productions Pty Ltd v O'Neill (1985) 1 NSWLR 601. 13 It is, I think, made clear by the authorities that the ordinary expectation and the ordinary predisposition are against separation of parts of proceedings, unless separate pursuit of one part to finality is going to bring the whole to an end. That is not the case here. Rather, the present application has to be considered as one of the cases which Giles J says must be carefully controlled, namely, where separate determination will avoid unnecessary and expensive hearing of other issues or, at least, it is asserted that that will be the case. The danger then, of course, is one of fragmentation. 14 I am conscious that in the present case the facts relevant to the trust strand will be largely facts in the period 1988 to 1992 and that facts relevant to the estoppel strand will be largely facts belonging to a much more recent period of time. But I am equally conscious that evidence of the first defendant, the person in relation to whom it is being made very clear that there will be an attack as to credit, will be indispensable to both strands. 15 In that connection, I quote the following remarks of Einstein J in Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215: "The defendants have in the course of their extensive opening made very plain that they intend to attack Mr Maconochie's credit at every level and to suggest that his evidence lacks the objectivity and impartiality said to be necessary in relation to the court being able to either accept or to give any real weight to the evidence of an expert. As Mr Maconochie is clearly an extremely important witness on many aspects of the plaintiffs' several cases, assuming for the moment that it was feasible or possible in this case to separate liability from damages, the notion that Mr Maconochie's credit could be dealt with when liability was being heard and that this should not or would not vitally affect the ability of the court to deal with his credit in relation to so much of his evidence as is to be adduced on damages or on causation/damages, is clearly misconceived. The probability that grave difficulties would be encountered by the court in so approaching the hearing is so very high that in my view, this factor alone clearly requires that the notice of motion be dismissed". 16 In cases where separate determination is not going to dispose of substantially the whole controversy, I think the position is still as stated by Kirby P in CBS Productions: "Where the exceptional circumstances exist that make it sensible to do so and no reason exists to suggest the contrary, the procedure can be beneficial". The procedure referred to is the separate determination procedure and the need is one for exceptional circumstances with no reason to the contrary. To my mind, the clearly flagged issue of the first defendant's credit, which will be relevant to both stages of the overall inquiry in these proceedings, amounts to a reason to suggest the contrary and the appropriate course is that the plaintiff's claims and the defendant's defences be litigated in the course of a single and composite trial in the usual way. 17 Order 1 in the first defendant's notice of motion is therefore refused.

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