Levy v Bablis & United Producers and Associates Pty Ltd

CATCHWORDS : EQUITY - Application for leave for discontinuance of proceedings during hearing - No appearance by second defendant despite prior notice of appointed hearing - Injustice to one party if discontinuance granted weighed against the need to not waste resources expended by the other parties - Public inconvenience of plaintiff recommencing proceedings at future time - Co-ordinate liability on joint judgment - Discontinuance would lead to loss of evidence of key international witness

Civil Procedure Act 2005 LEGISLATION CITED : Trade Practices Act 1974 (Cth) Uniform Civil Procedure Rules 2005

Barnes v Addy (1874) LR 9 Ch App 244 Castanhov Brown & Root (UK) Limited (1981) AC 557 Friend v Brooker (2009) HCA 21 CASES CITED : Greaves v CGU Insurance Ltd (BC200406468) Running Pygmy Productions Pty Limited v AMP General Insurance Co Ltd & Ors [2001] NSWSC 431 Stahlschmidt vWalford (1879) 4 QBD 217 Trade Practices Commission v Manfal Pty Limited & Ors (1991) 105 ALR 520

Julian Emmanuel Levy (Plaintiff) PARTIES : Peter Bablis (First Defendant) United Producers and Associates Pty Limited (Second Defendant)

Mr S J Stanton (Plaintiff) Mr M Holmes (Plaintiff) Mr J Simpkins SC (First Defendant) COUNSEL : Mr M Condon (First Defendant) Ms P McEniery (First Defendant) Mr A Street SC (Second Defendant) Ms D Hawkins (Second Defendant)

McLachlan Thorpe Partners (Plaintiff) SOLICITORS : Minter Ellison (First Defendant) Slattery Thompson (Second Defendant)

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

6289/06 Julian Emmanuel Levy v Peter Bablis & United Producers and Associates Pty Limited JUDGMENT [Application for leave for discontinuance of proceedings during hearing] 1 HIS HONOUR: The hearing of these proceedings commenced on Monday, 27 July 2009. Mr Stanton and Mr Holmes of counsel announced their appearance for the plaintiff, Julian Levy, on the first day of the hearing. Mr Simpkins SC and Mr Condon appeared for the first defendant Mr Peter Bablis. The second defendant, United Producers and Associates Pty Limited, did not appear on the first day of the hearing although its name was called outside the court at approximately 11:15am.

2 The first day of the hearing was occupied with the opening of the case by both sides and the identification and reading of the affidavit evidence. Yesterday, on the second day of the hearing, Mr Street SC and Ms Hawkins announced their appearance on behalf of the second defendant. Initially Mr Street sought an adjournment of the proceedings to permit his client an opportunity to prepare for the hearing as Mr Street submitted that his client had only had actual notice of the hearing as late as the previous Thursday, 23 July 2009, when he was contacted about it by Mr Bablis.

3 Mr Street's adjournment application was overtaken shortly after morning tea yesterday when Mr Street handed up to the court the terms of the agreement made between the plaintiff and the second defendant. That agreement signed by Mr Street and Mr Stanton provided: "1. Grant leave to the plaintiff to discontinue the proceedings against the second defendant. 2. Dispense with the need to file any notice so that this court order constitutes and effects the discontinuance. 3. No order as to costs between the plaintiff and the second defendant." 4 The plaintiff and the second defendant asked the court to grant the leave provided for in paragraph 1 of the agreement for discontinuance. The first defendant opposed the grant of leave. This judgement deals with the question as to whether or not that leave should be granted.

5 Legal argument about the contested discontinuance took place yesterday afternoon. The plaintiff tendered exhibit B on the application which was a included a communication which had been made by the plaintiff to inform the second defendant about this matter being fixed for hearing over five days commencing Monday 27 July 2009. I gave leave to Mr Street to adduce telephone evidence from Mr Brendan O'Dowd, currently a resident of Hong Kong and the principal of the second defendant, about issues relating to his prior notice of the appointed hearing date and the readiness of the second defendant to appear at this hearing and to defend these proceedings brought by the plaintiff.

6 Mr O'Dowd's evidence became necessary because in the course of legal argument Mr Street sought to advance as a consideration in favour of granting leave the fact that an adjournment of the proceedings would be a probable outcome if leave were not granted because of his client's lack of readiness to defend the plaintiff's case. I indicated to Mr Street that I was not able to take this factor into account unless I heard evidence as to what notice had in fact been given to the second defendant of the hearing and whether or not preparations in the hearing had been undertaken on behalf of the second defendant. I gave leave to Mr Street to adduce evidence of this character from Mr O'Dowd, who was cross-examined both by Mr Stanton and Mr Simpkins.

7 I gave leave to all parties to put in concise written submissions after hours yesterday, based on the evidence of Mr O'Dowd. I indicated that I would give judgement in this matter when the proceedings resumed this morning. Only three days of hearing time remain if the matter is to proceed against one or both defendants. In those circumstances the parties were required to provide submissions to the court notwithstanding the fact that a transcript of Mr Dowd's evidence was not yet available. All parties are represented by two counsel so there has been adequate opportunity for all parties to take notes of what Mr O'Dowd said over telephone and to make submissions based on those notes notwithstanding the transcript is not yet available.

8 The precise stage that these proceedings has reached procedurally is of some significance in this application. The proceedings were filed by the plaintiff on 14 December 2006. The proceedings were initially commenced only against the first defendant. The first directions hearing took place on 27 January 2007. Directions were made at a number of directions hearings throughout 2007 until 16 October 2007 when the plaintiff was given leave to join the second defendant to the proceedings.

9 An affidavit of service of the Further Amended Statement of Claim joining the second defendant was served on the second defendant at its registered office, which was care of Harris and Black accountants, Level 2, 262 Adelaide Street, Brisbane, Queensland, 4000, as is shown by exhibit B. This is undoubtedly the correct address for the registered office of the second defendant. An ASIC search which is part of exhibit B confirms this. So does Mr O'Dowd in his oral evidence. Notwithstanding the service of documents at this address, the second defendant has not appeared in the proceedings at any of the directions hearings since its joinder.

10 Many documents have been sent by the plaintiff to the registered office of the second defendant in the course of the proceedings. A subpoena was served on the second defendant's registered office in April 2007. After the joinder of the second defendant the plaintiff sent letters to the registered office of the second defendant dealing with procedural matters on 11 September 2007, 16 October 2007, 26 October 2007, 11 February 2008, 14 May 2008, 10 June 2008, 20 August 2008 and 25 August 2008. This correspondence informed the defendant of directions hearings, served amended documents, served notices of motion and generally kept the second defendant informed as to the progress of the proceedings towards hearing. On 23 December 2008, after a directions hearing in which these proceedings were fixed for hearing, a letter was sent by the solicitors for the plaintiff to the registered office of the second defendant notifying it of the hearing date. No reply to and no acknowledgement of any of this correspondence has ever been received by the plaintiff. There is no suggestion on the second defendant's behalf that it changed its registered office at any time between its joinder to these proceedings in October 2007 and the present time. The plaintiff's attorneys did all they reasonably could to keep the second defendant informed about these proceedings.

11 The second defendant's principal, Mr O'Dowd explains his lack of knowledge of these proceedings as the result of a breakdown in communications between himself and his accountant in Brisbane, Mr James Black. He says that Mr Black became distracted by commercial issues associated with the collapse of ABC learning Ltd from about February 2008. He says from that time Mr Black had been an unreliable correspondent with him in relation to the affairs of the second defendant. When the court asked Mr O'Dowd whether he appreciated whether the lack of communication between Mr Black and himself meant that there was a risk that important correspondence was being received at the registered office of the second defendant and not being forwarded to Mr O'Dowd, he candidly acknowledged that this was so and that in substance it was his responsibility. Mr Dowd's concession is plainly right. The failure of the second defendant to appear initially at this hearing has now been explained and responsibility for the non-appearance and the lack of readiness to proceed lies with the second defendant itself, because of its failure to have adequate communication systems in place with its own registered office.

12 To the extent that Mr Street submits that I should take into account the second defendant's lack of readiness to proceed with the hearing in considering whether or not to grant leave, the factor is one that does not weigh in Mr Street's favour. As will appear below, the result of this application is that the court will refuse to grant the leave requested. Mr Street of course is free to argue for an adjournment of the case against his client in order to ensure fairness to the second defendant notwithstanding the second defendant's own responsibility for the situation in which it now finds itself.

13 This case has been set down for five days. Extensive affidavit evidence has been prepared and filed. A five volume bundle of documents has been prepared and provided to the court. Two counsel have been briefed for each of the parties. A number of solicitors are present in court for each of the plaintiff and the first Defendant. When any application for an adjournment is being considered the possible injustice to the second defendant needs to be weighed against the need not to waste resources expended by the plaintiff and the first defendant. I will consider any application by Mr Street wishes to pursue in this regard in due course.

14 Rule 12.1 of the Uniform Civil Procedure Rules 2005 provides 12.1 Discontinuance of proceedings (1) The plaintiff in any proceedings may, by filing a notice of discontinuance, discontinue the proceedings, either as to all claims for relief or as to all claims for relief so far as they concern a particular defendant: (a) with the consent of each other active party in the proceedings, or

(2) A notice of discontinuance: (a) must bear a certificate by the plaintiff, or by his or her solicitor, to the effect that the plaintiff does not represent any other person, and

(b) except where it is filed with the leave of the court, must be accompanied by a notice from each party whose consent is required by subrule (1) to the effect that the party consents to the proceedings being discontinued in accordance with the notice of discontinuance.

(3) If any such consent is given on terms, those terms are to be incorporated in the notice of consent.

(4) If any party has not been served with the originating process, the plaintiff must file an affidavit to that effect.

(5) For the purposes of this rule, proceedings on a cross-claim are taken to be different proceedings to the proceedings on the originating process and to proceedings on any other cross-claim. 15 Rule 12.1 makes clear that other active parties in the proceedings who may not be involved in the discontinuance itself nevertheless have an interest in whether a discontinuance is allowed to occur. In this case leave to discontinue is opposed by the first defendant.

16 The principles that apply to a discontinuance in these circumstances have been stated by Lee J in Trade Practices Commission v Manfal Pty Limited & Ors (1991) 105 ALR 520: It may be accepted that an application for leave to discontinue proceedings against a respondent will normally be granted. However, that does not mean that such an order is granted as a matter of course. If that were so there would be no need for the Federal Court Rules to provide, as they do in O 22, r 2, that after pleadings have closed a proceeding may be discontinued either with the consent of all the parties or with the leave of the court. The discretion to grant leave is unfettered: see Covell Matthews & Partners v French Wools Ltd [1977] 1 WLR 876 at 879, SCI Operations Pty Ltd v Trade Practices Commission (1984) 53 ALR 283; 2 FCR 113 per Sweeney J at 142-3, per Lockhart J at 161-2, per Sheppard J at 184-5. The court will give consideration to the need to refrain from compelling a party to litigate against its will but will also consider the extent to which the proceedings have developed and whether discontinuance against one respondent may impose injustice on another respondent by removing an advantage that respondent may otherwise enjoy in the proceedings or by imposing a disadvantage. In considering the undesirability of an applicant being forced to continue litigation unwillingly, it is relevant to have regard to whether the discontinuance would make any difference to the burden of litigation undertaken by the applicant and whether the application to discontinue results from a conclusion that the litigation cannot succeed against that respondent or is inspired by other reasons. The requirement of the Federal Court Rules that, in the absence of consent of all parties, discontinuance of litigation against a party only be permitted by leave of the court contemplates a judicial review of all relevant circumstances and the satisfaction of the court that the grant of leave is proper in all the circumstances. In some cases the court may determine that a grant of leave to discontinue should be attended with conditions and in a rare case the court may determine that the only appropriate order is to refuse the leave sought.

17 These principles in Manfal have been applied on many occasions and in recent years in this division by Palmer J in Running Pygmy Productions Pty Limited v AMP General Insurance Co Ltd & Ors [2001] NSWSC 431 (5 June 2001) and Bergin J (as her Honour then was) in Greaves v CGU Insurance Ltd (BC200406468).

18 The cases show that courts have a greater reluctance to give leave to a party to discontinue during or close to a hearing. This is probably not a special rule but springs from the words used by Lee J that the Court will consider "the extent to which the proceedings have developed" and will often merely be a result that will flow from the fact that a defendant will at hearing more readily be able to identify an advantage to which he is fairly and reasonably entitled and which advantage he does not wish to lose by the discontinuance: cf Stahlschmidt vWalford (1879) 4 QBD 217 and Castanhov Brown & Root (UK) Limited (1981) AC 557.

19 It is now necessary to apply these principles to the circumstances of the present case. Consideration

20 Before hearing that the first defendant opposed the grant of leave to discontinue the court first gave consideration to the public inconvenience that would be caused by the plaintiff recommencing proceedings at a future time and occupying the time of the court again with these issues again being litigated among the parties. Counsel for the plaintiff indicated that he had instructions to agree to the discontinuance upon terms that future litigation of the same subject matters could not later be brought against the second defendant. This concession would normally have satisfied the court that a discontinuance was appropriate if it was not opposed by any other party.

21 Mr Simpkins opposes the discontinuance and submits that the first defendant would be disadvantaged by the discontinuance for two main reasons: first the prospect of coordinate liability under a judgement affecting both the first defendant and second defendant will be lost (and accordingly any entitlement to contribution); and second evidence that would otherwise have been obtained from the second defendant in the course of the hearing of these proceedings as to the circumstances of the plaintiffs investment and the ability of the second defendant to return the whole or part of the investment will be lost to the first defendant.

Loss of the prospect of Co-ordinate Liability under a judgment

22 Mr Simpkins' first argument is based on the following passage from Manfals Case: Upon the entry of judgment and irrespective of the grounds of liability relied upon at law to obtain the judgment, the entry of judgment will create a coordinate liability between Manfal and the relevant respondents in respect of the sum recoverable under the judgment on behalf of each consumer. The amount of the loss or damage in respect of which judgment is entered will be the amount of loss or damage suffered by reason of the conduct of Manfal in contravention of the Act, not by reason of the conduct of a person involved in that contravention. The right of action and the quantum of the remedy flows solely from the conduct of Manfal in contravention of the Act. It will be the same liability which gives rise to a joint judgment against Manfal and the other respondents. There will be a common interest and common burden under such a judgment: see Munkman, Quasi Contract p 81. Although such conduct by Manfal must be proved in order to obtain an order for compensation under s 87(1 a) against a person involved in the contravention, the absence of Manfal as a party to the proceeding would mean that there could be no judgment binding upon Manfal. However, the discharge of liability under the judgment by any one of the individual respondents would discharge the consumer's claim for the amount of loss or damage suffered by reason of Manfal's conduct and, therefore, any claim against Manfal. If Manfal were a party to that judgment there would be no question that it would be obliged to make proportionate contribution to any other party to the judgment who voluntarily or involuntarily discharged the judgment and it would be entitled to receive proportionate contributions from all other parties to the judgment if it discharged the judgment. Whatever may have been the situation at law and in equity in respect of rights of contribution prior to the entry of judgment, the entry of a joint or joint and several judgment creates a common burden between the parties to the judgment, although execution of such a judgment may be directed or levied against and satisfied by one of the parties to the judgment. Once the coordinate liability of the parties has been established in a joint judgment, a new burden is created to which rights of contribution are attached. It follows that all parties to the judgment must bear the judgment equally and no one of the judgment debtors is able to profit from the discharge of that equal responsibility by another: see Randall, Story's Commentaries on Equity Jurisprudence (3rd English ed), para 493.

23 A defendant in the position of the first defendant, who anticipates that if he is found liable that he will be a co-judgement debtor with another party on a joint judgement, may choose not to take the trouble and expense of commencing a cross-claim against that other party. A discontinuance by the plaintiff against that other party creates a procedural dilemma for the defendant who was relying upon the possibility of being party to a joint judgement if he was liable at all. Such a party may have to give consideration to pursuing the absent party by a separate cross-claim either in the proceedings or by later action after judgement. This dilemma is created by the discontinuance.

24 Mr Street answers this argument by pointing out that there is no common obligation or community of interest of the necessary kind here that would allow the doctrine being invoked in Manfel to be applied here: see for example Friend v Brooker (2009) HCA 21. Mr Street says that the first defendant cannot read too much into the words in Manfel "irrespective of the grounds of liability relied upon to obtain the judgement" and that the principal in Manfel is limited to joint liability. Mr Street points to the facts of Manfal being just such a case where a company's contravention of s 52A of the Trade Practices Act 1974 (Cth) was participated in by other respondents but where all of their liabilities stemmed back to a finding of the one contravention.

25 Even if Mr Street is correct in this submission, it is evident from paragraphs 22-29 of the Third Further Amended Statement of Claim in this case that among many causes of action the plaintiff makes a case against the first defendant of breach of fiduciary duty and against the second defendant of knowing participation in the first defendant's breach of that fiduciary duty or knowing receipt of money resulting from that breach of fiduciary duty: Barnes v Addy (1874) LR 9 Ch App 244. Were the plaintiff to succeed against both defendants on this course of action and to recover equitable compensation, the necessary ingredients for a joint judgement and the application of the principles of Manfel, even in a narrow form propounded by Mr Street, would be established. If I permit discontinuance of the plaintiff's claim against the second defendant, on at least one possible outcome of the proceedings the first defendant would lose the fair and reasonable advantage that he now has of establishing coordinate liability on a joint judgement with a second defendant without the need for a cross-claim.

26 Mr Simpkins' second argument also has force. Mr O'Dowd agreed that if there was no leave to discontinue he would give evidence about the circumstances of the plaintiff's investment. Mr O'Dowd's presence in the witness box could be a palpable tactical advantage for the first defendant in this hearing. Mr O'Dowd claims that in his discussions with the plaintiff over the telephone at the time of the investments in 2005 that the plaintiff was interested in taking advantage of financial dealings which offered the possibility of high returns. It is in the first defendant's interests to argue that the plaintiff has an appetite for high-risk investments. Mr O'Dowd may be one way that the first defendant can advance this argument. Mr O'Dowd is an international businessman living in Hong Kong, and would not be readily amenable to the compulsory processes of this court if he were not a party to the proceedings already giving evidence. The assistance of Mr O'Dowd's evidence is a fair and reasonable advantage that the first defendant now has in the proceedings which would be diminished or lost if the plaintiff were permitted to discontinue against the second defendant.

27 The plaintiff's decision to discontinue against this second defendant is somewhat puzzling in the light of Mr O'Dowd's evidence that he concedes an obligation to repay at least $1 million to the plaintiff. Having Mr O'Dowd's appearance in person at the hearing and his giving of evidence about the likelihood of those monies being repaid would also assist the first defendant in reducing the quantum of any liability to the plaintiff which may be found against him. Having the second defendant available to give this evidence is another fair and reasonable advantage that the first defendant now has which would be diminished or lost by the discontinuance.

28 Mr O'Dowd's concessions about the obligation to repay at least $1 million also, to a large extent, set at rest any concern that might otherwise exist that by refusing leave to discontinue the court is forcing the plaintiff to conduct a losing case on which he will be wasting costs. The plaintiff has not advanced such an argument as a reason against discontinuance and in light of Mr O'Dowd's evidence such an argument would be extremely difficult to maintain. It also diminishes the force of Mr Street's submission that if allowed to continue these proceedings are unfairly inconvenient to the second defendant.

29 Mr Street has emphasised the inconvenience to the second defendant in a refusal of leave. Such inconvenience can be inferred and needs to be weighed in the balance with the disadvantage to the first defendant from the grant of leave. This factor is not an unqualified argument in favour of granting leave because if leave were granted the first defendant would be more likely to commence proceedings against the second defendant. I am also mindful of the fact that the plaintiff and the second defendant are still not precluded by a refusal of leave from coming to an agreement to end the proceedings between them in a way that does not require the leave of the Court. 30 Mr Street has advanced a number of other arguments based on ss 55, 56 and 57 of the Civil Procedure Act 2005 against leave but they all appear to the court to be matters that are equivocal or can be debated when the second defendant's continued participation in these proceedings is being considered.

31 The plaintiff submits that he should not have to explain why he seeks leave to discontinue. I agree with that submission but the absence of an explanation that compels the conclusion that refusal to grant leave will force the plaintiff to waste costs in a hopeless action, means that such considerations cannot be taken into account in favour of the plaintiff. The plaintiff also emphasises the courtesy that has been shown by the plaintiff to the second defendant in keeping the second defendant informed of the hearing. There is doubt that his chain of communications with the second defendant has been exemplary. However issues such as these do not outweigh in the court's consideration the need to ensure that the grant of relief does not deprive the first defendant of any existing legitimate advantage available to him under the present structure of these proceedings. There are several such advantages to the first defendant and they are not outweighed by other factors.

32 Accordingly I decline to grant the relief requested under r 12.1 of the UCPR.

10/08/2009 - Correction - Paragraph(s) Hearing Date and Ex Tempore Date amended.Paragraphs 27 and 31 amended

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