Idoport Pty Ltd & Anor v National Australia Bank Ltd & 8 Ors; Idoport Pty Ltd & Market Holdings Pty Ltd v Donald Robert Argus; Idoport Pty Ltd "JMG" v National Australia Bank Ltd

Idoport Pty Ltd & Anor v National Australia Bank Ltd & 8 Ors; Idoport Pty Ltd & Market Holdings Pty Ltd v Donald Robert Argus; Idoport Pty Ltd "JMG" v National Australia Bank Ltd - [2001] NSWSC 427 - NSWSC 2001 case summary — Zoe

[11]

The Proceedings 3 In the three related sets of proceedings the plaintiffs claim from the defendants damages in excess of $50 billion. The general nature of the proceedings was outlined in an interlocutory judgment [(1999) NSWSC 828] delivered on 19 August 1999. Since that date there have been numerous contested motions and contested directions hearings. The pleadings have also moved on in terms of a number of further issues being raised and further particulars being furnished. The MLC proceedings which commenced in September 2000 are being heard together with the two earlier sets of proceedings. Very extensive discovery has been given and numerous statements have been filed and served from a large number of witnesses. The general state of the matter as at mid April 2000 was set out in a judgment dealing with a contested application relating to use of the Technology Court. [(2000) 49 NSWLR 51] 4 The final hearing of the proceedings commenced on 24 July 2000. Very extensive openings and applications for leave to amend the statement of claim and for leave to amend the defences and very extensive argument in relation to questions of expertise as well as other interlocutory motions covering a wide variety of issues have occupied a considerable part of the period between that time and the present time. Approximately 18 judgments of my own have been delivered during that bracket of time. That bracket of time has also seen a continued roll-out of statements by both parties following the amended pleadings and following a close examination of their respective claims to be doing no more than responding to one another's new materials. Only one of the plaintiffs witnesses has been cross-examined during that bracket of time. The evidence in chief of Mr Martin, the plaintiffs' first major technical witness, has been taken. His statements cover well over 1,000 pages. The most recent of the interlocutory judgments delivered has at the same time, struck out the plaintiffs causes of action against a number of individual defendants for the tort of inducing breaches of contract, and also allowed the plaintiffs, on terms, to further amend the statements of claim to add additional causes of action. The plaintiffs have accepted that the leave so granted to plead the additional causes of action must entitle the defendants to properly address the new cases, both in terms of appropriate amendments to pleadings as well as in terms of adducing such further evidence as may be necessary to deal with the new causes of action. 5 The litigation is in my view particularly difficult for the curial process. The Court must administer justice in terms of any proceedings before the court.. The parties are entitled to present their respective cases and to test one another's cases in accordance with well-established procedures. Evidence which is relevant to the issues will generally be admitted. The capacity of the court to test the substance of pleaded issues is limited. The ultimate judgment must take into account all of the evidence presented during the hearing and all of the submissions put by the parties to the court. Notwithstanding the seemingly inapt, in relation to the proceedings, use of the words 'quick' and 'cheap' in the expression 'just, quick and cheap', the court under cover of the overriding purpose rule [Supreme Court Rules - Part 1 Rule 3] may take whatever steps are practicable to case manage the proceedings so as to expedite the hearing and bring the proceedings to a conclusion. The court has approached the hearing of the proceedings by time and time again, endeavouring to tie down the material issues and requiring that relevant issues be properly pleaded and particularised. Achieving a measure of expedition in proceedings of the current scale is exceptionally difficult for obvious reasons. Achieving a measure of expedition is likely to be all the more difficult in circumstances in which the plaintiffs have elected to call Mr Maconochie as their last witness and to intersperse expert and lay witnesses, witnesses going to damages and witnesses going to liability, in the batting order. In contradistinction to the manner in which evidence is commonly adduced by first establishing relevant assumptions and then calling expert witnesses asked to make assumptions, the plaintiffs are proceeding to in many instances reverse this order. This is the plaintiffs' forensic entitlement but clearly causes sundry case management difficulties. Whilst the Court has the power to interfere in the order of presentation by a party of a case, the Court has not up to this point in time been disposed to exercise that power. Such a step would be extreme in proceedings of the complexity of these proceedings and of course the defendants order of witnesses will (barring Court interference) generally be also a matter for them . 6 The essential difficulty which is encountered is readily revealed when one bears in mind that the proceedings concern a claim by the plaintiffs which: (a) if successful, was (during the opening) said to exceed the capitalisation of the National Australia Bank, (b) encapsulate a number of proceedings covering a plethora of factual and legal issues - and as to the damages claims, embrace a global investigation of e-commerce markets, and technology. 7 In those circumstances the defendants, within the dual constraints of practicable case management and the public interest in preventing individual litigants from unduly burdening the list, have every entitlement to take care and time in defending the proceedings. And the plaintiffs have of course, a concomitant entitlement to pursue their pleaded cases with vigour. 8 The number of witnesses and witness statements filed by both parties in the proceedings can only be regarded as extraordinary. A frank and careful overview of the witnesses (lay and expert) proposed to be called on specific issues and of the evidentiary materials to be treated with through the hearing, suggests that the proceedings are likely to be completed in terms of the hearing, in early 2003. The Court may be expected to take particular care, consistently with the interests of justice, to move the proceedings along in circumstances where the issues have now been clarified and more particularly identified. A judgment will then have to be delivered and no doubt the preparation of the judgment will also take real-time.

[13]

The correspondence leading to the application 10 The plaintiffs solicitors in their recent correspondence to the defendants solicitors have in support of their seeking the defendants agreement to mediation, stated as follows: "The judgment delivered by Einstein J. on 2 May 2001 made it clear that the plaintiffs have pleaded and particularise material facts in support of the objective dishonesty assertion and which underpins the cause of action for participation in breach of fiduciary obligation by individual defendants. The diametrically opposed interests of the Bank and its shareholders on the Bank's case and those of the personal defendants may require their separate legal representation. This may further extend the case's duration. The size of the plaintiffs' claim is unusual, but is for lost opportunity damages reflecting past and current e-commerce market developments, and is likely to increase substantially with the effluxion of time. The plaintiffs' claim for damages and compensation is contractually based and well supported by the plaintiffs' independent expert opinion. The claim, on the plaintiffs' case, is increasingly being confirmed by market developments. The nature of the claim is such that those damages are increasing with time. It is conceivable, to put the matter at its lowest, that the Bank's shareholders funds may not be sufficient to pay out a verdict on the current damages claim, any increases from this point in time, and, with the duration of the case, substantial additional amounts by way of interest. In these circumstances, Idoport would be placed in the position of having, as its other principal recourse, to seek a position ahead of the Bank's depositors. In the meantime, as our letter of 8 May 2001 makes clear, if appropriate undertakings are not given by the Bank and its directors, Idoport may be placed in the position of seeking to ensure that the Bank will not put its capital and assets beyond the reach of the plaintiffs until the litigation or commercial negotiation resolves the dispute. The public statements by some of the Bank's directors and spokesmen and their conduct of the case thus far would appear to recognise that the Bank and its shareholders face considerable unknown litigation risk, perhaps over many years. In the meantime, it is now clear, if it was not before, that the Bank will bear very substantial litigation costs, perhaps amounting to hundreds of millions of dollars. A distracted senior management, including the personal defendants for the time being, may extract a heavy price on shareholder value in the many years to come. The Bank's future prospects and its deployment of capital may well be constrained until the litigation is concluded. The National Australia Bank is Australia's largest financial institution. Plainly, these are matters of major public and national interest. It is our view, and that of our clients, that bona fide discussions in a mediation context may enable the dispute to be resolved sensibly and commercially at the stage, within a sensible commercial time frame if the parties so agree." 11 This letter concluded by seeking the defendants response within seven days and advising that in the absence of a response or if the defendants were to decline to agree to a mediation, the plaintiffs may well make the application which is now before the court. 12 The response of the defendants solicitors of 15 May 2001 was inter alia: "Your letter contains a series of threats and unfounded allegations as a precursor to a suggestion of "bona fide" mediation. It is plain from the assertions in your letter, each of which are denied, that your client and our clients have completely different views as to your client's prospects of success in this litigation. We repeat that we regard your client's claim as misconceived, both as to liability and quantum. Your client's conduct continues to leave our clients with no alternative but to press ahead towards a final determination of these proceedings at the earliest possible opportunity, regardless of the length of time that the case may take. Our clients also, of course, remain dedicated to the prosecution of their cross-claim and to the recovery of the costs incurred by them in the defence of this claim. While your client continues to make such extravagant and baseless claims of the kind expressed in your letter, mediation would be futile. The Bank considers this course in the circumstances to be completely consistent with its obligations to its shareholders which is of course its first priority." 13 A subsequent exchange of correspondence [letter from the plaintiffs solicitors of 17 May 2001/letter from the defendants solicitors of 18 May 2001] did not further the stances taken by each of the parties in the earlier communications. The letter from the plaintiffs solicitors did however allege that the Bank and its Directors appeared to require as a precondition to their agreement to mediation, that the plaintiffs should abandon their case and the claims made in it and alleged that such a position, is held, was really not responsible. The letter went on: "You appear to misunderstand the position concerning our clients' claims. Our clients, while maintaining their claims in the litigation, are prepared to mediate those claims outside the litigation. Our clients do not, and could not properly, put those claims or the claims of the defendants in the proceedings as any sort of barrier to mediation. Nor can the Bank and its Directors properly do so. Our clients consider that mediation is now appropriate and timely, in the interests of the parties, the Court, the administration of justice and the public. It could take place while Mr Martin is being cross-examined." 14 The letter from the defendants solicitors advised inter alia that the Bank continues to regard the request for mediation as contrary to the interests of its shareholders.

[14]

The 1994 Amendments - Genesis of Supreme Court Act Part 7B 15 Before turning to the plaintiffs' submissions which are pressed under cover of the 2000 mandatory mediation amendments to the Supreme Court Act, it is convenient to briefly examine the 1994 antecedents to these amendments. 16 Commencing on 14 November 1994, the Courts Legislation (Mediation and Evaluation) Amendment Act 1994 (NSW) introduced Part 7B into the Supreme Court Act 1970 (NSW) ("the Act"). 17 The 1994 amendments introducing Part 7B to the Act reflected the Government's growing interest in alternative dispute resolution as a means to improving legal services and providing greater access to justice. [Courts Legislation (Mediation and Evaluation) Amendment Bill, Second Reading Speech, The Hon RJ Webster, 4 May 1994] 18 At the time, the government cited mediation as the most popular form of alternative dispute resolution, and was mindful of its very high success rate. It was suggested that this reality resulted from the safe, neutral and confidential environment in which the circumstances surrounding the dispute are disclosed within the mediation process; and the mediator's role is in assisting the parties to produce a workable result without imposing a solution. [Courts Legislation (Mediation and Evaluation) Amendment Bill, Second Reading Speech, The Hon RJ Webster, 4 May 1994] 19 A contrast was also drawn between the speedy and effective "win-win" outcome that is produced through mediation; and the "win-lose" situation that results from the lengthy litigation process. Furthermore, mediation encourages settlement at an earlier stage of the procedure, precluding the investment of hefty legal costs which would otherwise arise. Mediation was also said to allow the relationship between the parities to remain intact following the resolution of the matter. [Courts Legislation (Mediation and Evaluation) Amendment Bill Second Reading Speech, The Hon RJ Webster, 4 May 1994] 20 Following this amendment and prior to 2000, the Supreme Court was only able to refer a matter to mediation if it considered the circumstances appropriate and the parties consented to the referral and agreed to the mediator. Attendance at and participation in mediation sessions were voluntary, and parties could withdraw at any time. The Court did not have power to determine the extent to which parties were liable to pay costs.

[16]

The Plaintiffs' submissions 25 The plaintiffs presented carefully prepared written submissions in support of the application. The submissions identified the approach taken by the plaintiffs and the grounds for the application. In many areas the submissions have real substance. The convenient course is to set out the submissions and as appropriate to identify those sections where to my observation, the submissions are of substance and are adopted and accepted as pervasive. 26 Paragraphs 3.1-3.3 of the submissions are self-explanatory: ' 3.1 It is evident from the notice of motion, the affidavits and the correspondence, that the JMG Parties wish to and are prepared to mediate in good faith all the disputes in the proceedings. As the correspondence makes clear, they make this proposal in the view that mediation may well effect a sensible and timely commercial compromise for all concerned, in a responsible and businesslike manner, and that this is desirable in the interests of the parties, the public and the administration of justice. [These matters are noted] 3.2 It is proposed that a very senior and experienced mediator be appointed, who would have the necessary independence to bring about "a different perspective into such procedures and can bring about a settlement even between parties who are evidently bent on litigation" (see Rogers CJ AWA Ltd v Daniels t/as Deloitte Haskins and Sells, unreported, Supreme Court of New South Wales, 24 Feb 1992). The JMG parties in this case are not and never have been bent on litigation. [As to the 1st sentence, no submission to the contrary is addressed by the defendants. As to the second sentence the proposition constitutes a claim by the plaintiffs] 3.3 The JMG parties accept that the mediator should be a person approved by the Court, and preferably agreed by the parties. The JMG parties have not at this stage made any enquiries of any suitable persons as to availability or otherwise as they respectfully submit this is best done after the Court has determined whether or not a reference to mediation should be ordered. If the Court is minded so to order, or makes a conditional order, discussions between the parties can take place to enable a joint approach to suitable and mutually acceptable appropriate persons. The JMG parties also accept that the Court may make directions to ensure any mediation proceeds in a timely fashion and does not interfere with the trial of the proceedings . [These matters are noted] 27 The propositions put in the plaintiffs' summary of submissions [set out in paragraphs 4 and 5] appear to me to be generally correct. That summary is as follows: 4. The Supreme Court Act and Rules clearly empower the Court to order a "mandatory mediation". And the Court has done so: see Waterhouse v Perkins [2001] NSWSC 13 where the respondent's approach to the application for mediation was described the Court as "entirely negative". 5. Whether an order under section 110K is to be made depends upon the circumstances of each particular case. In this case, the factors and considerations favoring an order far outnumber factors which may be put against in the case. The principal factors favoring an order for mediation are the following: (a) At this stage of the proceedings and trial, the principal issues between the parties have been identified, interlocutory disputes largely resolved, and those issues and the evidence or intended evidence in relation to them and the principal contentions of the parties in respect of them are known to the parties and their legal representatives. · Preparation for and the conduct of the mediation is thus facilitated. · Mediation at this stage would be relatively expeditious and probably much more likely to be effective than at a later stage after cross-examination of the principal witnesses for the plaintiffs, or at an even later stage, after cross-examination of the principal witnesses for the defendants. · The issues on liability are relatively clearly defined and known to the parties and can be taken into account in relation to any compromise. A substantial part of the issues in dispute concern the quantum of damages and compensation, which are matters ripe for mediation.

[22]

(h) The JMG parties and the Bank and the other defendants are clearly prepared (in the defendants' case, if ordered) to mediate in good faith. · The JMG parties have made that clear in the correspondence, Mr Hetherington's first affidavit, and by making this application. · As for the defendants, Senior Counsel for the Bank has stated (transcript p9242 ll53-58), Finally, as far as the mediation continuing during the course of the proceedings are concerned, if there was to be a mediation, there is a duty under section 110L for the parties to participate in good faith. If a mediation was ordered, the Bank would of course do that, but do it having regard to its view of the litigation. · As for the liquidator of Market Holdings, as an officer of the Court, he would of course abide by the requirements of section 110L of the Supreme Court Act. If he were unable or unwilling to participate and could properly refrain from participating, all shareholders and creditors of Market Holdings Pty Limited (in liquidation) would in any event be represented in the mediation. 28 The position with respect to the last bullet point as at the time of the hearing of the notice of was as follows. The liquidator of Market Holdings, Mr Silva, through Ms Schweikert of Corrs, who has courteously appeared as a friend of the court, has made plain that in the absence of any funding, he is unable to presently participate in the proceedings or in the mediation and that his position should be able to be clarified in the next few weeks. I proceed, however, upon the assumption that, in essence all relevant creditors of and shareholders in Market Holdings will be seized of the events which would occur if a mediation was ordered. This is because it is common ground that all shareholders in Market Holdings are, in one way or another, to be properly regarded as interests associated with Mr Maconochie. This is also because it is common ground that Young J [NAB Ltd v Market Holdings Pty Ltd [2001] NSWSC 253] held that the creditors of Market Holdings in liquidation are: (1) Efficiency Investments BV as an assignee from Mr Maconochie and Investors Buying Services (IBS) Pty Ltd. (2) The cross claimants to the first cross claim: NAB and NMG as to the amount claimed in the first cross claim. (3) The defendants as to costs orders.

[24]

'In this regard the defendants' position was that the letters annexed to Mr Hetherington's affidavit demonstrate an expectation or a view of the plaintiff as to the merits of their case and the possible consequences of it which are so far removed from the defendants' perception of this litigation as to make mediation at the present time in our respectful submission, futile.' 30 The plaintiffs response to this suggestion was as follows: (a) As stated in paragraph 3.1 above, it is evident from the notice of motion, the affidavits and the correspondence, that the JMG Parties wish to and are prepared to mediate in good faith all the disputes in the proceedings. As the correspondence makes clear, they make this proposal in the view that mediation may well effect a sensible and timely commercial compromise for all concerned, in a responsible and businesslike manner, and that this is desirable in the interests of the parties, the public and the administration of justice. (b) It is nothing new, and often the case in proceedings which are successfully mediated, that the parties have very different views of their respective cases, and of the resolution of the issues in the case. Mediation may well effect a sensible and timely commercial compromise for all concerned, in a responsible and businesslike manner. The JMG parties, while maintaining their claims in the litigation, are prepared to mediate those claims outside the litigation. They do not, and could not properly, put those claims or the claims of the defendants in the proceedings as any sort of a barrier to mediation. Nor can the Bank and its Directors properly do so. [I accept the submissions in this sub-paragraph as of substance] (c) Notwithstanding that the stated position of the defendants is one of opposition to the application, the Court should bear in mind the remarks of the Chief Justice (Law Society Journal (NSW, Australia), March 2001, page 63, Supreme Court: Mediation (2001) 39 (2) LSJ 63) that: It appears that, perhaps as a matter of tactics, neither the parties nor their legal representatives in a hard-fought dispute are willing to suggest mediation or even to indicate that they are prepared to contemplate it. No doubt this could be seen as a sign of weakness. Nevertheless, the parties are content to take part in the mediation conference if directed to do so by a Judge. There is a category of disputants who are reluctant starters, but who become willing participants. It is to that category that the new power is directed. I formed the view that a power of the character now conferred on the Court by Parliament was a useful addition to the armoury of the Court to achieve its objectives. [Clearly the propositions in this sub-paragraph are correct] 31 As to the suggestion that the mediation would be futile if the liquidator of Market Holdings did not take part, the plaintiffs submitted that the liquidator, as an officer of the Court, would of course abide by the requirements of section 110L of the Supreme Court Act. The submission was that as such an officer, he would, presumably, co-operate in the mediation (see Waterhouse v Perkins at para 94) and not seek to frustrate the mediation in any way. If he were unable or unwilling to participate and could properly refrain from participating, all shareholders and creditors of Market Holdings Pty Limited (in liquidation) would in any event be represented in the mediation. The position as at the date of the hearing of the motion following what fell from Ms Schweikert and discussion with the Bar table, has already been set out above. 32 As to the suggestion that the mediation would be futile if any external funder did not take part, the plaintiffs submitted that it is not the case that the consent of any external funder is necessary for the JMG parties or Market Holdings Pty Limited (in liquidation) or the liquidator to compromise the claims, and that the JMG parties would have available at the mediation all persons with authority necessary on their part to agree to a mediation or any compromise obtained in it. No evidence to the contrary was adduced on the hearing of the motion.

[55]

Judicial consideration of Part 7B 44 Part 7B (or its equivalent) has been considered, inter alia, in the following cases in relation to ordering a mediation over objection: · Waterhouse v Perkins NSW Supreme Court (Levine J) [2001] NSWSC 13 [Mediation ordered] · Morrow v Chinadotcom NSW Supreme Court (Barrett J) [2001] NSWSC 209, and on application for leave to appeal [2001] NSWCA 82 [Mediation not ordered] · Hopcroft v Olsen SA Supreme Court (Perry J) [1998] SASC 7009 [Mediation ordered] · Baulderstone Hornibrook Engineering v Dare Sutton SA Supreme Court (Perry J) [2000] SASC 159 [Mediation ordered] · Kilthistle No. 6 v Austwide Homes Federal Court (Lehane J) [1997] 1383 FCA [Mediation not ordered "at present" and Motion stood over] 45 I accept that all these decisions were pre-trial decisions. None of these cases displayed as many of the matters supporting the order for mediation as the present proceedings. Nor did they involve proceedings of the magnitude, state of preparation and readiness, and likely duration as those of the present proceedings. 46 The plaintiffs then submit that the most appropriate guidance is obtained from Justice Levine in Waterhouse v Perkins. This was a defamation case. The defendants applied to the Court for directed mediation. Although the plaintiffs' reaction was "entirely negative", Levine J ordered mediation stating, inter alia: "Essentially it was argued in support of the application that by reason of the complexities of the issues between the parties ( and there are cross-claims), the length of time taken since the initiation of proceedings (1991 - the first action), what would be the length of time to be taken and the inestimable amount of costs to be incurred in a fully litigated jury trial are factors which at least point to the desirability of the exploration of the resolution of the issues between the parties otherwise than by the trial itself. . . . However, the Court does have the power imposed by s 110K to order mediation without the consent of the parties to the proceedings.

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