The plaintiff, Mr Gregory Lewis, brings these proceedings against the defendant, Mr Juan Martinez, the managing partner of the lawyers practising in partnership as a national law firm under the name "HWL Ebsworth Lawyers". The plaintiff does not seek a winding up of the partnership. The matter for decision in these reasons is whether Mr Martinez should be appointed as a nominal defendant to represent all the other partners of the firm, or whether they should all be joined as defendants in the proceedings. The issues in the proceedings may be shortly described.
Mr Lewis is a former Capital Partner of HWL Ebsworth Lawyers. He is a party to the HWL Ebsworth Lawyers' partnership deed dated 20 May 2016 ("the Deed") which constitutes the partnership. Some of the partners are required to make capital contributions to the partnership and are described in the Deed as "Capital Partners", and the others are described as "Fixed Draw Partners". The partnership is governed by resolutions passed by the Capital Partners, which at the times relevant to these proceedings comprised 182 partners, including Mr Lewis.
Strictly, under the Deed the Capital Partners are a series of practice trusts, each of which nominates an individual legal practitioner to exercise rights under the Deed on behalf of that Capital Partner. For convenience, in these reasons no distinction will be made between these nominated legal practitioners and their related Practice Trusts. Mr Lewis executed the Deed in his capacity as the trustee of the Lewis HWL Practice Trust ("the Lewis trust"). The Deed is governed by the laws of Victoria.
Mr Lewis alleges in his Statement of Claim ("the Pleading") that the Capital Partners of HWL Ebsworth Lawyers breached both the Deed and the Partnership Act 1958 (Vic) by passing resolutions that he claims are null and void and of no legal effect.
The Deed provides in Clause 20 for the expulsion of a Capital Partner by an Extraordinary Resolution (of 80%) of Capital Partners. In Clause 20 the Capital Partners acknowledge that "no reason need be given for expulsion of a Capital Partner by extraordinary resolution" and the intention of the Deed "is to afford flexibility for the capital partners to expel any Capital Partner…for any reason they deem appropriate".
Mr Lewis alleges in the Pleading that an Extraordinary Resolution of the Capital Partners on 11 August 2020 (modified by further resolution on 16 October 2020), which he describes as constituting the First Purported Expulsion, as a matter of substance had the purported effect of expelling him from the partnership and denying him the opportunity to participate in a proposed Initial Public Offering ("IPO") of the partnership on the Australian Stock Exchange. Mr Lewis alleges that the 11 August 2020 resolution had this effect because it reduced from 16 to zero his units (called Calibration Points in the Deed) in the partnership, that entitled him to a share of partnership profits.
Mr Lewis alleges that the 11 August 2020 resolution was null and void and of no legal effect. He alleges it was attended by procedural irregularities, because it denied procedural fairness to Mr Lewis and failed to include relevant information to Capital Partners. He also alleges it was vitiated by substantive defects, because it was preceded by the supply of untrue information to Capital Partners, and because it purported to exercise the power of expulsion for inappropriate reasons and for ulterior purposes, namely to exclude Mr Lewis from the IPO in which he would otherwise be entitled to participate.
Mr Lewis also alleges in the Pleading that on 8 November 2020 Mr Martinez proposed to the Capital Partners and the Capital Partners passed another resolution purportedly in accordance with Clause 20 of the Deed, described in the Pleading as the "Second Purported Expulsion". Mr Lewis alleges the 8 November 2020 resolution is also null and void. He alleges that Clause 20 did not authorise an expulsion for reasons that would be contrary to law and that the 8 November 2020 resolution: denied Mr Lewis procedural fairness, purported to exercise the power of expulsion beyond the terms of the Deed for improper purposes and in a fraud on the power of expulsion, because it purported to exercise the power for an ulterior purpose (namely the ulterior purpose alleged to affect the 11 August 2020 resolution).
Finally, Mr Lewis alleges that, in conduct consequent upon the Second Purported Expulsion and in further breach of his duty of good faith and fiduciary obligations, Mr Martinez, as agent for the Capital Partners, excluded Mr Lewis from his HWL Ebsworth Lawyers email account, document management system and intranet, reallocated his practice to other partners, reassigned his legal staff and denied him further receipt of a profit share including through fortnightly drawings.
The Pleading seeks relief declaring that the First Purported Expulsion and the Second Purported Expulsion were a repudiation of the Deed and it seeks relief requiring the Capital Partners to buy out his interest in HWL Ebsworth Lawyers which he claims at $4.4 million and various alternative amounts.
This judgment decides a preliminary procedural issue. By his Amended Notice of Motion dated 24 February 2021 ("the Motion"), Mr Lewis seeks orders that the Defendant, in addition to appearing on his own behalf, be appointed to represent in these proceedings the other partners trading as HWL Ebsworth Lawyers (other than the Plaintiff). In the alternative, the Motion seeks leave to file an Amended Statement of Claim joining all 181 Capital Partners.
Affidavits of Benjamin Neil Wibo Dibden sworn 24 February 2021, and accompanying Exhibit BND-1, and another sworn 22 June 2021 were filed in support of the Motion. And affidavits of Alexander Boyd Haslam sworn 8 March and June 2021 were filed in response to the Motion.
After Parker J dealt with other procedural matters, this Motion was listed to be heard on 9 July 2021. But by 28 June 2021, Sydney was placed under Covid-19 lockdown restrictions. Considering these changed conditions, the parties consented to this matter being heard on the papers once all submissions and documents had been filed. On 8 July the Court Book was received including all submissions and documents from both parties.
Mr Lewis was represented on the Motion by Mr F.M. Douglas QC, Mr J.K. Carter and Mr J.B. Douglas of counsel, instructed by Mr B.N.W Dibden of Bridges Lawyers. Mr Martinez was represented on the Motion by Mr M.R. Elliot SC and Mr K. Petch instructed by Mr A. Haslam of Gilchrist Connell.
Mr Martinez's submissions on the Motion raise the issues for determination.
[3]
The Defendant's Submissions on the Motion
Mr Martinez contends that in naming him as representative of the partners of HWL Ebsworth Lawyers the Statement of Claim is irregular in several respects and the proceedings should be reconstituted to join all the Capital Partners as defendants.
Mr Martinez supports this contention with two groups of submissions. The first group of submissions may be concisely stated. Mr Martinez is a party to the Deed only as the trustee of a Capital Partner, although the Pleading does not identify him in that capacity. The Statement of Claim pleads relief only against the Capital Partners but does not join the Capital Partners other than Mr Martinez. The Deed itself contains no mechanism authorising Mr Martinez to represent the Capital Partners in litigation brought against the firm. The Capital Partners have not passed a resolution authorising him to represent them. The Deed does not indemnify Mr Martinez for taking steps in proceedings on behalf of the Capital Partners. Mr Martinez's delegated powers as Managing Partner under the Deed do not permit him to make decisions on behalf of the Capital Partners in the proceedings. Mr Martinez does not consent to being sued as a representative for the Capital Partners as a whole. He argues each of the Capital Partners of the firm should be joined individually as defendants, in conformity with the Uniform Civil Procedure Rules 2005 ("UCPR") and the general law in relation to partnership suits.
In his second group of submissions, Mr Martinez argues that as the Capital Partners are liable jointly as partners of the firm, but not severally, this has the consequence that all Capital Partners must be joined. Partnership Act (Vic), s 13 provides for joint liability of every partner in a partnership for all debts and obligations that the firm incurred while the person is a partner. Mr Martinez points to the operation of UCPR, rr 6.21(1) and (2) in the circumstances of this case, which provide as follows:
"6.21 Proceedings affecting persons having joint or several liability
(cf SCR Part 8, rule 5; DCR Part 7, rule 5; LCR Part 6, rule 5)
(1) A person who is jointly and severally liable with some other person in relation to any act, matter or thing need not be a defendant in proceedings with respect to that act, matter or thing merely because the other person is a defendant in those proceedings.
(2) In any proceedings in which a defendant is one of a number of persons who are jointly, but not severally, liable in contract or tort, or under an Act or statutory instrument, the court may order that the other persons be joined as defendants and that the proceedings be stayed until those other persons have been so joined."
Mr Lewis seeks relief against the Capital Partners generally. The Capital Partners have agreed between themselves that liability for both trading and capital losses is joint but is to be borne among them in accordance with what the Deed, Clause 7.3 describes as "Calibration Point allocation".
Mr Martinez seeks orders that Mr Lewis withdraw the Motion and that Mr Lewis file an Amended Statement of Claim joining each of the Capital Partners as a defendant in the proceedings, as he seeks both declarations and monetary relief against each of them. To facilitate this course, Mr Martinez has provided Mr Lewis with a list of the Capital Partners at the time of the events the subject of the proceedings.
If Mr Lewis declines to join all the Capital Partners as defendants, Mr Martinez submits the Court should make orders under UCPR, r 6.21(2) requiring him to join them and to stay the proceedings until such time as he has done so. Mr Martinez says that he can claim relief under UCPR, r 6.21(2) as one of several persons who are jointly but not severally liable under the Deed, or under the Partnership Act (Vic). He submits the remaining Capital Partners are those persons who should be joined as the defendants.
Mr Martinez submits that the balance of convenience does not require the exclusion of the Capital Partners as defendants. He submits that this is an inapt case for the making of a representative order. He submits that the usual factors that would prompt the making of a representative order are not present here: cf. Burwood Council v Ralan Burwood Pty Ltd [2014] NSWCA 179 ("Burwood Council"). Mr Martinez submits the class of necessary parties in this case is not numerous: there being 181 Capital Partners, apart from Mr Lewis, who are readily identifiable and who can each be named as defendants. The fact the Capital Partners have a common interest in the proceedings, which raise a common issue among them he submits does not compel the conclusion that a representative order should be made. Rather he submits it indicates there will be no duplication in issues if each of the Capital Partners is joined, particularly as it is proposed that they will all be represented by the same law firm.
[4]
The Jurisdiction to Appoint Representative Defendants
The Court has established sources of jurisdiction to make representative orders in litigation involving multi-partner partnerships, such as HWL Ebsworth Lawyers. The first source arises at general law in the Court's Equity jurisdiction. The second is rule-based, developed out of the Court's Equity jurisdiction, and is presently reflected in UCPR, rr 7.6 and 7.7. The exercise of the general Equity jurisdiction to appoint representative parties informs the exercise of the rule-based jurisdiction.
Representative orders have long been made in partnership litigation. In the mid-19th century, litigation involving large unincorporated partnerships and trade associations was commonplace in the jurisdiction of Courts of Chancery. This was later displaced by litigation involving corporations. But by the early 19th century, Chancery judges had developed the practice in litigation involving multi-partner partnerships of appointing representative parties for classes of plaintiffs (Apperly v Page (1847) 41 ER 829; (1847) 1 Ph 779; (1847) SC 4 Rail Cas 568; (1847) 16 L. J. Ch. 302; Cooper v Webb (1847) 60 ER 695; (1847) 15 Sim 454; Williams v Salmond (1856) 69 ER 864; (1856) 2 K&J 463 or for classes of defendants (Bromley v Williams (1863) 55 ER 69; (1863) 32 Beav 177 ("Bromley")). In doing so, the Court resolved the tension between two earlier established rules: one rule bound the Court to withhold its jurisdiction in partnership cases, except upon a bill in Equity seeking the dissolution of the partnership; and the other rule required that all the partners should be parties to a bill praying for dissolution. The Court's practical solution was to appoint representative parties and exercise jurisdiction short of partnership dissolution.
As Lord Cottenham recognised in Wallworth v Holt (1841) 41 ER 238; (1841) 4 My & Cr 619:
"that the door of this Court would be shut, in all cases in which the partners or shareholders are too numerous to be made parties: which, in the present state of the transactions of mankind, would be an absolute denial of justice to a large portion of the subjects of the realm, in some of the most important of their affairs. This result is quite sufficient to show that such cannot be the law; for as I have said upon other occasions, I think it the duty of this Court to adapt its practice and course of proceeding to the existing state of society, and not, by too strict an adherence to forms and rules established under different circumstances, to decline to administer justice and to enforce rights for which there is no other remedy. This has always been the principle of this Court, though not at all times sufficiently attended to. It is the ground upon which the Court has, in many cases, dispensed with the presence of parties who would according to the general practice, been necessary parties."
The practice books of the day describe such appointments as a well-established part of jurisdiction in Equity: Daniell's Chancery Practice, 5th ed, 1871, Stephen & Sons, at 211-212. But the preconditions for the operation of the jurisdiction were that the plaintiff did not pray for dissolution of the partnership and all the relevant interests of the represented class were identical: Mozeley v Alston (1847) 41 ER 833; (1947) 1 Ph 790 at [798]. If all plaintiffs were not in precisely the same interests, the persons found to be in a different interest could be joined as additional defendants.
Bromley is a prominent early example of the representative order being made with respect to a class of defendants. In Bromley a plaintiff joined a ship owners' club for the mutual insurance of their vessels. The plaintiff's vessel was lost, and he claimed in his bill of equity to join the secretary and the treasurer of the club, requiring them to procure payment from the members of the sum insured for his lost vessel. The learned Master of the Rolls, Sir John Romilly said at [188] and [189] as follows:
"[188] [T]his rule is well-established - That if they are so numerous that they cannot be made parties to the cause, with any chance of bringing it to a hearing, in consequence of abatements and the like difficulties, then you may make two or three of a class Defendants to represent the interest of all of that class. Formerly that was not the practice of this Court, but the rules have been modified and altered so as to suit the exigencies of modern practice, as was done by Lord Cottenham in several instances. But if there be three or four classes who have separate and conflicting interests, then you may select two or three from each class to represent that interest, in the same way as if the whole class had been brought before the Court.
[189] It is obvious that this is not a case in which the Plaintiff could have sued on behalf of himself and all other members of the concern, because he is actually suing the concern, and his interest is in conflict with all the other members. It sometimes happens that there is a class of members of a company who have a conflicting interest with the others; and then the Plaintiffs, if the class to which they belong are very numerous, put forward two or three of their body who sue on behalf of themselves and all the others of that class, and make the other persons who have conflicting interests, or some, on behalf of the rest if numerous, Defendants. This case comes within that rule; a few persons have been selected and made Defendants to represent the interests of the rest of the members, and consequently, in that respect, I think the bill is correct in form."
Bromley was applied in Wood v Macarthur and Another (1893) 1 QB 775 ("Wood"), in which Wills J stated the law in these terms (at 777): "for a very long time past the Court of Chancery has been in the habit of allowing a certain number of a class of defendants to represent the whole body".
After the Judicature Acts, what had been the equitable rule was introduced across all jurisdictions of the High Court in England as Order 16, Rule 9 (the substance of which later became Order 15, Rule 12). Order 15, Rule 12 had the object to facilitate the bringing of actions against unincorporated aggregates of persons: The London Association for the Protection of Trade v Greenlands Ltd [1916] 2 AC 15; [1916-17] All ER Rep 452 at 30. The Courts interpret the rules "for the sake of convenience" and "in accordance with common sense" in order to "come at justice": Bedford v Ellis (1901) AC 1 and 8.
The cases decided under Order 15, Rule 12 illustrate some of the considerations that the Courts continues to bring to bear when a party is appointed to represent a class to ensure fairness. Before authorising a person to be a class representative, in some cases the Court sought to be satisfied through evidence that the person is authorised to represent them: Morgan's Brewery Co. v Crosskill [1902] 1 Ch 899. The rule was interpreted not to leave the ultimate selection of the representative defendant to the choice of the plaintiff or the defendant and the Court would supervise the selection so proper persons defend on behalf of others: Walker v Sur [1914] 2 KB 930, at 934. In doing so, the Court would closely scrutinise the nature of the cause of action pleaded against the defendants and the precise extent of the class: Barker v Allanson [1937] 1 KB 463 at 475.
In New South Wales, Order 15, Rule 12 was substantially reproduced in Supreme Court Rules 1970, Part 8, Rule 13 ("SCR"). After the passage of the Civil Procedure Act 2005, with some modification SCR, Part 8, Rule 13 became UCPR, rr 7.6, 7.7 and 7.8. The text of Order 15, Rule 12 differed from UCPR, rr 7.6, 7.7 and 7.8 in material respects that are not of present relevance. For example, under Order 15, Rule 12(3), the leave of the Court was required before enforcing a judgment against a represented non-party to proceedings. But UCPR, r 7.7 is binding on the represented class, as if they had been parties to the proceedings.
In Carnie v Esanda Finance Corporation Ltd (1995) 182 CLR 398; (1995) 127 ALR 76; [1995] HCA 9, at 404 (per Mason CJ, Deane J Dawson J), 408 (per Brennan J) and 429 (per McHugh J) the High Court considered the scope and operation of SCR, Part 8, Rule 13, stating: that the obvious purpose of the rule was "to facilitate the administration of justice"; that the "lack of detailed legislative prescription" in the rule does not provide a sufficient reason to narrow the scope of its operation; and "precisely because of the flexible utility of the representative action the judicial control of its conduct is important" not just for efficiency but so "that the interest of those who are absent but represented are not prejudiced by the conduct of the litigation on their behalf"; representative orders may be made without the consent, or even the knowledge, of persons who are to be represented; and, the Court has the power to intervene if it is not satisfied that the representative is independent, or is otherwise not properly balancing the interests of the represented group.
The role of the representative under SCR, Part 8, Rules 13 and 14 was also discussed in Arakella Pty Ltd v Paton (As Representative of the Unitholders of GNS Trading Trust) (2004) 60 NSWLR 334; [2004] NSWSC 13 at [54] - [55], [61] and [64]. The representative must act honestly and fairly to represent what the representative considers to be the interests of the represented group, which may include not opposing all orders sought by the other party.
Representative actions of the type in question here are governed by UCPR, rr 7.6, 7.7 and 7.8 which provide as follows:
"7.6 Representation in cases concerning administration of estates, trust property or statutory interpretation
(1) In relation to proceedings concerning -
(a) the administration of a deceased person's estate, or
(b) property the subject of a trust, or
(c) the construction of an Act, instrument or other document,
where a person or class of persons is or may be interested in or affected by the proceedings, the court may appoint one or more of those persons to represent any one or more of them.
(2) A person or persons may not be appointed under subrule (1) unless the court is satisfied of one or more of the following -
(a) that the person or class, or a member of the class, cannot, or cannot readily, be ascertained,
(b) that the person or class, or a member of the class, although ascertained, cannot be found,
(c) that, although the person or class, or a member of the class, has been ascertained and found, it is expedient for the purpose of saving expense (having regard to all of the circumstances, including the amount at stake and the degree of difficulty of the issue or issues to be determined) for a representative to be appointed to represent any one or more of them.
(3) For the purposes of this rule, persons may be treated as having an interest or liability -
(a) even if, in relation to one or more of them, the interest or liability is a contingent or future interest or liability, or
(b) even if one or more of those persons is an unborn child.
(4) This rule does not limit the operation of rule 7.10.
7.7 Judgments and orders bind represented persons in estate and trust property proceedings
A judgment or order made in proceedings in which a party has, by an order under rule 7.6, been appointed to represent a number of persons, or members of a class of persons, binds all such persons, and all members of such a class, as if they had been parties to the proceedings.
7.8 Court may determine who has conduct of proceedings
The court may give the conduct of the whole or any part of any proceedings to such person as it thinks fit."
However the jurisdiction has developed, in considering the making of a representative order the Court should pay close regard to the considerations identified in UCPR, rr 7.6. In making orders under UCPR, rr 7.6, 7.7, in Ahmed v Chowdhury [2012] NSWSC 1452 ("Ahmed") Lindsay J comprehensively surveyed the history of representative orders (at [25] - [350]) and the principles that are to be applied when considering the appointment of a representative under the present rules.
In Burwood Council, Sackville AJA acknowledged the comprehensive analysis of past authority in Ahmed and (at [21]) and also grounded the Court's exercise of this jurisdiction in Civil Procedure Act, ss 56 - 58 as follows:
"[21] Having regard both to the principles developed by the Court of Chancery and the terms of ss 56-58 of the Civil Procedure Act, in my opinion it is open to the Court to make a representative order if:
● the party seeking the order shows that a class of necessary parties is so numerous that it is not reasonably practicable to join them in the proceedings unless a representative order is made;
● the representative party and the represented class have a common interest in the proceedings;
● the proceedings raise a substantial common issue of law or fact affecting the representative party and all members of the represented group; and
● it is in the interests of justice and consistent with the overriding purpose stated in s 56(1) of the Civil Procedure Act that the order should be made."
[5]
Should a Representative Order be Made?
UCPR, r 7.6 is engaged here. The Pleading raises issues of law and fact which are common to Mr Martinez and all the partners of HWL Ebsworth Lawyers, the group that he is proposed to represent. It pleads the same allegations against all the partners, who are all parties to and bound by the Deed. The Deed will need to be construed at the hearing of these proceedings. The relief Mr Lewis seeks against the Capital Partners in respect of the conduct complained of will be the same and will in part be a function of the construction of the Deed. This case therefore attracts the application of UCPR, r 7.6 as it involves "the construction of an instrument or other document" where "a class of persons is interested in or affected by the proceedings": UCPR, r 7.6(1)(c). Mr Martinez does not contend that he does not have a common interest with the other partners.
In those circumstances "the Court may appoint one or more of those persons to represent any one or more of them": UCPR, r 7.6(1). A relevant limitation on that power where the class can be ascertained and located is that the Court must be satisfied "it is expedient for the purpose of saving expense (having regard to all the circumstances, including the amount at stake and the degree of difficulty of the issue or issues to be determined) for a representative to be appointed to represent any one or more of them": UCPR, r 7.6(2)(c).
Here the class of defendants can be ascertained and found. But for the making of a representative order, the proper defendants to this litigation would be the 181 partners other than Mr Lewis at the time of the impugned resolutions: John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd. 241 CLR 1; (2010) 266 ALR 462; [2010] HCA 19, at [131].
Mr Lewis emphasises in his submissions the inconvenience of joining 181 defendants. In many cases involving 181 defendants he would be quite right about this and the Court would lean in favour of making a representative order. But in this case the circumstances do not indicate that much expense will be saved by the Court making a representative order appointing Mr Martinez. The matter can be analysed from the perspective of the plaintiff, from the perspective of the Capital Partners, and from the perspective of the Court.
From the perspective of the plaintiff, some of the more obvious expenses in the conduct of proceedings that join so many defendants would be the burdensome requirement for him constantly to communicate with so many defendants and for him to have to amend his Pleading regularly when the circumstances of the defendant partners change.
But Mr Martinez has volunteered in evidence that a single law firm will represent all 181 Capital Partners. This, in the Court's view, is a decisive factor here. And had this not been offered the Court would have been inclined to make a representative order. For the defendants to engage a single firm of solicitors will undoubtedly simplify the plaintiff's communications with all the defendants.
During the life of this litigation the circumstances of the 181 defendants of the partnership may change, perhaps necessitating some formal amendments to the pleadings. But the proposed defendants would be those partners who were partners at the time of the impugned resolutions. The class of defendants is not growing or shrinking over time, as the partnership changes. Under this Division's case management practices, the proceedings should be brought on for trial within 12 months, so not many changes of circumstances of individual partners is to be expected. And any formal amendments that are needed by reason of the change of circumstances of an individual partner can be arranged to coincide with other more substantive amendments that from time to time would be expected in litigation such as this.
From the perspective of the Capital Partners, it might perhaps be thought to be more efficient to have one representative responsible for them all, communicating with them and taking responsibility for conducting the proceedings on their behalf. Were Mr Martinez to be appointed a representative under UCPR r 7.6, the Deed, Clause 10.2 and Schedule 2 confer ample power on him as the Managing Partner to conduct the litigation in the interests of the Capital Partners.
But in substance that same efficiency will be achieved by the Capital Partners as defendants employing a single firm of solicitors. Whether they are joined as individual defendants or as a class represented by Mr Martinez, the Capital Partners will need to reach a consensus in the conduct of the litigation, pass resolutions under the Deed to give instructions to their solicitors, or delegate to the Managing Partner, Mr Martinez, the giving of such instructions. It is difficult to see how the internal processes of the Capital Partners will differ much, if a representative order is made.
Mr Lewis submits that Civil Procedure Act, s 56 considerations indicate here that a representative order should be made. But from the perspective of the Court, little is to be gained by making a representative order and indeed there may be some disadvantages. This is not a case like Ahmed or Burwood Council where the class to be represented is a disparate class of persons drawn from the general community, who do not have an existing close relationship with one another and where constant delay to the proceedings can be anticipated from trying to forge a consensus in the conduct of the proceedings among the class. Here the Capital Partners are already bound into a disciplined and practised decision-making process under the Deed and can be expected to react as quickly to the Court's case management requirements as any other individual litigant to give instructions to a solicitor conducting proceedings.
But there are disadvantages in appointing Mr Martinez as a representative. The Pleading alleges that Mr Martinez was the provider of the allegedly incorrect information given to the other Capital Partners before they passed the impugned resolutions. Undoubtedly that allegation will be defended. And the Court has yet to see how the issues in these proceedings unfold. But the possibility at least exists that the interests of Mr Martinez and the other partners may diverge in some respects, risking an outcome that his appointment as a representative of the other partners may have to be unwound in the future.
That could be cured by someone other than Mr Martinez being appointed by the Court to represent the Capital Partners in this litigation. But the inconvenience of exploring this issue before appointing Mr Martinez as a representative is another reason for the Court not to take that course.
The parties' submissions also canvas several other issues that the Court has not found necessary to deal with in order to decide the principal issue on the Motion. These are now mentioned briefly.
Mr Martinez contends that the Pleading is irregular because it does not purport to sue him in his capacity as trustee of the Martinez Practice Trust.
This submission is not persuasive. Mr Martinez is the proper defendant in the proceedings in his personal capacity. Nothing turns on whether he is expressly described in the Pleading as acting as a trustee or otherwise in his personal capacity: ALYK (H.K.) Limited v Caprock Commodities Trading Pty Limited and China Construction Bank Corporation [2015] NSWSC 1006 at [26], per Black J. A trust has no separate legal personality from the trustee. An obligation incurred by a trustee, whether or not it is incurred in breach of trust may ordinarily be enforced in the same way as an obligation incurred by a person who is not a trustee: ACES Sogutlu Holdings Pty Ltd (in liq) v Commonwealth Bank of Australia (2014) 89 NSWLR 209; [2014] NSWCA 402, per Leeming JA at [16], with whom Beazley P (as her Excellency then was) and Macfarlan JA concurred. Ordinarily the trustee is liable for all debts contracted in their capacity as trustee: Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; [1979] HCA 61 at [367]; and In re Johnson (1880) 15 Ch D at 548 at [552].
The Deed describes all the respective trustees of various trusts that are described as the "Capital Partners" as "Nominated Persons". Mr Martinez, like all the other Nominated Persons, is a contracting partner under the Deed who it is contemplated is also a trustee of an individual trust, as is Mr Lewis. He is still an individually liable partner. There is no defect in Mr Lewis' pleading on this account.
Mr Martinez submits that gaps in the Deed are an impediment to his appointment to represent the other HWL Ebsworth Lawyers partners. He submits the Deed provides no mechanism to appoint Mr Martinez as a representative defendant for the Capital Partners in litigation. The Capital Partners have not resolved to authorise it and Mr Martinez's powers as Managing Partner conferred under the Deed do not allow him unilaterally to decide to act in the proceedings on the Capital Partners' behalf.
This submission is not persuasive. The Deed and the internal management of the partnership are not the relevant sources of the Court's power to appoint a representative defendant. Rather the sources of the Court's power are Civil Procedure Act, ss 56-58, UCPR r 7.6, and the Court's Equity jurisdiction.
Mr Martinez submitted he did not consent to act as a representative of all the Capital Partners. But this was not a reason for the Court not to have made the orders against him. Orders in the Court's general Equity jurisdiction authorising one or more persons to defend on behalf of all persons having the same interest in an association or partnership have long been made over the objections of the person or persons being ordered to defend on behalf of others: Wood. Situations can arise where no one may wish to represent a class of defendants, as in Wood; yet the interests of justice call for a representative order to be made. The Court may have to make an order without the consent of a class member. Any adverse consequences of such orders can ultimately be mitigated by the Court making orders to protect the interests of both the representative and other class members.
It is not necessary for the Court to deal with Mr Martinez's alternative submission that the liability of the Capital Partners for trading and capital losses is joint, but not several, and that the Capital Partners should therefore all be joined to the proceedings: UCPR, r 6.21.
[6]
Conclusions and Orders
For these reasons, the Court will not make the representative orders sought on the Motion and Mr Lewis will be required to file his Amended Statement of Claim joining all the Capital Partners as defendants. But in his reply submissions Mr Martinez has taken issue with several technical aspects of the form of the Amended Statement of Claim. It is convenient for the Court to deal with those issues before this pleading is filed.
The plaintiff has not had an opportunity to reply to those points in the reply submissions. He may not wish to do so. But if the plaintiff files short written submissions in answer on the form of the Pleading by Thursday, 28 October 2021 the Court will shortly thereafter determine in Chambers any issues on the form of the Pleading and deal with any issues of costs when making final orders on the Motion.
The only direction that the Court will make at this stage is that the plaintiff is directed to file with the Court and serve by 28 October 2021 any reply submissions to paragraphs [28] to [37] of the defendant's submissions dated 6 July 2021.
[7]
Amendments
26 October 2021 - Coversheet - citation updated.
[5], [8], [19], [44] - "Clause" capitalised.
[10] line 1 - "and" instead of "in"; line 2 - "were" instead of "was".
[31] line 2 - comma inserted after "Part 8".
[32] line 1 - further citation references added.
[37] line 5 - duplicate "to be" deleted.
[39] line 2 - comma inserted after "order".
[45] line 5 - "by" deleted before "delegate".
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 26 October 2021
Parties
Applicant/Plaintiff:
Lewis
Respondent/Defendant:
Martinez as representative of the partners t/as HWL Ebsworth Lawyers