Mercedes Holdings Pty Limited v Waters [2010] FCA 124 | Case summary

REASONS FOR JUDGMENT 1 The present proceeding is a class action brought by eight unit holders in a publicly listed property trust known at the time giving rise to the litigation as the MFS Premium Income Fund and known now as the Premium Income Fund ("the Fund"). The proceeding is complex. Another application before the Court seeks leave to file an amended statement of claim some 571 pages in length. There are 14 respondents to the suit including the Fund's former responsible entity, a number of its directors and a well known firm of auditors. 2 The third respondent is one of the applicants on the present motion. Until 15 October 2008, it was the Fund's responsible entity. It has gone through a number of name changes. Since its name does not appear to be a particularly permanent feature of its identity I will refer to it only as the third respondent. It has also changed in ownership. Prior to 13 June 2008, it was a member of the MFS group of companies but would now appear, from that date, to be a wholly owned subsidiary of Wellington Capital Limited ("Wellington"). On 15 October 2008, the third respondent was relieved of its role as the responsible entity of the Fund and that task taken over by its new parent Wellington. Wellington is the other applicant on the present motion. 3 That motion, dated 2 December 2009 - which it will be seen is brought by the former and present responsible entities of the Fund - seeks the Court's approval for the discontinuance of the applicants' proceedings against them. Because the proceeding is a class action and involves the rights of class members who are not directly before the Court, s 33V of the Federal Court of Australia Act 1976 (Cth) requires approval before any settlement or discontinuance may be effectuated. It provides: Settlement and discontinuance--representative proceeding (1) A representative proceeding may not be settled or discontinued without the approval of the Court. (2) If the Court gives such an approval, it may make such orders as are just with respect to the distribution of any money paid under a settlement or paid into the Court. 4 It may seem curious that it is the third respondent and its parent company which now seek leave for the proceeding to be discontinued when the proceeding is not brought by them but rather by the applicants against them and on behalf of class members. That sense of peculiarity in the application is augmented by the fact that the applicants not only do not wish the Court to grant such approval but actively resist discontinuing the proceeding at all. 5 This unusual circumstance comes about because Wellington claims to have reached a concluded agreement with the applicants that they would discontinue the proceedings against the third respondent. Wellington - a party to that contract but not a party to these proceedings - now seeks to have this Court enforce that agreement by compelling the applicants' to discontinue the proceeding against the third respondent. Since such a discontinuance is barred by s 33V without first obtaining court approval, Wellington and the third respondent seek such leave. 6 The application gave rise to number of issues of some complexity which I am prepared to assume should be answered favourably to Wellington and the third respondent. In particular, I am content to assume that: (a) the agreement is to be construed as requiring the applicants now to discontinue the proceeding; (b) the application to enforce the agreement can and should be pursued by notice of motion; and (c) the applicants' proposed claims against the third respondent and Wellington seeking to vary the agreement on the basis of conduct said to be in breach of the Trade Practices Act 1974 (Cth) are so lacking in merit that they may be disregarded. 7 Making these assumptions in the third respondent and Wellington's favour it is still necessary for them: (a) to establish that the agreement should be specifically enforced; and (b) that approval should be granted under s 33V of the Act for the discontinuance of the proceeding. 8 In fact, only the question of s 33V approval actually matters. If the Court will not grant approval under s 33V then the claim that the applicants must be compelled by curial order to discontinue the proceeding must fail for performance of that agreement will be impossible. The learned authors of the fourth edition of Meagher, Gummow and Lehane's Equity Doctrines and Remedies ref (4th ed., Lexis Nexis Butterworths, 2002) draw attention at pages 677-678 to the statement of Dent P in Hall v Vernon 34 SE 764 at 765 (1899) that equity "never does a vain thing, or enforces a void or impossible contract. Men may divide the moon by imaginary lines, but equity will not enforce their contract". So too here, equity will not compel the applicants to file a notice of discontinuance if this Court's registry will not accept it for filing, there having been no antecedent grant of leave under s 33V. 9 The question then is whether leave should be granted. Ordinarily, the question of leave arises in the context of determining whether leave should be granted to settle rather than discontinue a proceeding. Usually settlement of class actions will extinguish forever one set of rights in the class - put simply, their choses in action - and replace them with another, namely, rights under the proposed settlement arrangement. This is, of course, a significant step to take. The parties before the Court are the representative parties and their advisors. Human experience teaches that those individuals - leaving aside issues such as minority and capacity - can be expected to reach views on any proposed settlement which the Court need not second guess. However, as has often enough been pointed out, the opt-out nature of class actions in this Court gives rise to the possibility not only of class members who are disengaged from the litigation but perhaps ignorant of it altogether. More importantly, since the representative parties and their lawyers are at the coalface of the suit where time, stress and money are being consumed in the furnace of litigation, it is natural that their inclination towards settlement may be affected by a just appreciation of their own positions. Those positions, and the allied interests accompanying them, may not wholly coincide with those of the members of the class. It is to superintend that inherent tension that s 33V erects a requirement for court approval of settlements and discontinuances. 10 The course of authority confirms that the task of the approving court is to assess whether the compromise or discontinuance "is a fair and reasonable" one (Lopez v Star World Enterprises Pty Ltd (1999) 21 ATPR¶ 41-678 at p 42,670 per Finkelstein J) which requires one to be satisfied that the settlement or discontinuance "has been undertaken in the interests of the group members as a whole, and not just in the interests of the applicant and the respondent" (Australian Competition and Consumer Commission v Chats House Investments Pty Ltd (1996) 71 FCR 250 at 258 per Branson J). Consequently, common sense suggests, and authority confirms, that the applicant for leave bears the onus of showing that the settlement or discontinuance is in the interests of all class members. There is some debate as to what precisely needs to be proved on such an application but I need not enter upon it because in this case the applicants for leave have eschewed proving anything about the nature of the class members' rights. 11 That posture is assumed, as I understand it, because the third respondent (and its parent) submit that all that is sought is approval of a discontinuance and that a discontinuance, in contradistinction to a substantive settlement, has no impact on the class members' underlying rights. 12 Discontinuance is governed by O 22 of the Federal Court Rules. Rule 7 provides: A discontinuance under this Order to any cause of action shall not, subject to the terms of any leave to discontinue, be a defence to a proceeding for the same, or substantially the same, cause of action. 13 I accept, therefore, that the proposed discontinuance will not affect the subsisting choses in action of the class members. It does not follow, however, that it is shown thereby that the position of the class members is not adversely affected by the discontinuance. This is because the proposed discontinuance happens in the real world, two aspects of which pose a real risk to the class members. The first is evident because the third respondent expressly argued before me that the terms of the agreement were such that whilst the proceeding remained on foot (against, for example, the other parties such as the auditors or the former officers) a fresh proceeding could not be commenced. This was because there was an express term to that effect and because it was said that such a term needed, in any event, to be implied into the agreement in order to give it some practical operation. Whether such a term would be implied need not be presently finally determined although it may, perhaps, be doubted that such a term falls within the principles laid out in William Stirling The Younger v Maitland and Boyd (1864) 5 B & S 840 at 852; 122 ER 1043 at 1047 per Cockburn J; McKay v Dick (1881) 6 App Cas 251 at 263 per Lord Blackburn. 14 Should the third respondent be right in this contention (and, perhaps unsurprisingly, it did not suggest it to me that it was not) then the applicants and the class members may not be able to commence fresh proceedings for some time. How long is some time? One enters at once into the realm of the speculative but there is no reason to think that complex litigation of the present kind may not take several years and, including appeals, possibly more. This is significant because the causes of action asserted against the third respondent are based on s 601MA of the Corporations Act 2001 (Cth) which is in these terms: Civil liability of responsible entity to members (1) A member of a registered scheme who suffers loss or damage because of conduct of the scheme's responsible entity that contravenes a provision of this Chapter may recover the amount of the loss or damage by action against the responsible entity whether or not the responsible entity has been convicted of an offence, or has had a civil penalty order made against it, in respect of the contravention. (2) An action under subsection (1) must be begun within 6 years after the cause of action arises. (3) This section does not affect any liability that a person has under other provisions of this Act or under other laws. 15 Subsection (2) requires any claim to be brought within six years of the cause of action's accrual. It is possible - not even particularly unlikely - that the proceeding may still be on foot, in one form or another, after the expiration of that limitation period. 16 The third respondent and Wellington accepted that possibility but sought to outflank it by proffering an undertaking not to rely upon limitation defences in any subsequent proceeding. The significance of that undertaking was, I think, twofold. First, it amounted to a waiver of the limitation defence (or perhaps an estoppel); secondly, it provided a basis for extending the limitation period under s 1322(4)(d) of the Corporations Act 2001. The applicants, on the other hand, submitted that the time limit prescribed by s 601MA(2) was a matter which went to the power of the Court to award relief and was not a procedural defence which might subsequently be waived by the third respondent. 17 As to the first argument, the matter was explained by Windeyer J in Australian Iron & Steel Limited v Hoogland (1962) 108 CLR 471 at 488-489 thus: It seems that, under the common law system of pleading, when a limitation is annexed by a particular statue to a right it creates, the plaintiff should allege in his declaration that the action was brought within time. On the other hand it is for the defendant to plead the Statute of Limitations as a defence to an action on a common law cause of action, as if he does not it is assumed that he intends to waive it: see Chapple v. Durston. However, when issue is joined on a plea of the Statute, the burden of proving that the action is within time is on the plaintiff: see cases referred to by DixonJ., as he then was, in Cohen v Cohen. And, even when a time limit is imposed by the statute that creates a new cause of action or right, it may be so expressed that it is regarded as having a purely procedural character, as a condition of the remedy rather than an element in the right; and in such cases it can, it seems, be waived, either expressly or in some cases by estoppel. (footnotes omitted) See also Pedersen v Young (1964) 110 CLR 162 at 169 per Menzies J; Commonwealth v Verwayen (1990) 170 CLR 394 at 425 per Brennan J; State of Western Australia v Wardley Australia Limited (1991) 30 FCR 245 at 259 per Spender, Gummow and Lee JJ. The last mentioned decision confirms that the then three year time limit under s 82(2) of the Trade Practices Act 1974 (Cth) may be waived. That section provided the "an action … may be commenced at any time within three years …". 18 No doubt determining whether any particular time bar which is annexed to a statutory cause of action is procedural or whether instead it goes to the existence of the action may, in practice, prove difficult. If the wording of s 601MA(2) of the Corporations Act 2001 were identical to s 82(2) of the Trade Practices Act 1974 the position of the third respondent and Wellington would be strengthened. However, s 601MA(2) uses the word "must" which is more emphatic then the word "may" appearing in s 82(2). Thus, the reasoning in State of Western Australia v Wardley is not directly applicable. 19 I was referred to no authority directly deciding whether the time bar in s 601MA(2) is capable of being waived. The question for me is whether there is a risk that s 601MA(2) operates in the way contended for by the applicants and not whether it does, in fact, operate that way. No doubt, if there were appellate authority to the effect that s 601MA(2) was a procedural bar susceptible to waiver it might be easier to conclude that the risk was low. But the state of authority is not clear and the use of the word "must" creates a real risk, in the sense of not being insubstantial, that the time limit might be jurisdictional. 20 As to the second argument, I do not think that resort to s 1322(4)(d) is of any assistance. It provides: Irregularities (4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: (a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation; (b) an order directing the rectification of any register kept by ASIC under this Act; (c) an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a); (d) an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding; and may make such consequential or ancillary orders as the Court thinks fit. 21 The third respondent and Wellington's argument was that the time prescribed by s 601MA(2) might be enlarged nunc pro tunc under s 1322(4)(d). The third respondent and Wellington, very properly, brought to my attention three decisions where s 1322(4)(d) had been held not to permit a retrospective extension of time. These were David Grant & Co Pty Limited v Westpac Banking Corporation (1995) 184 CLR 265 where the High Court held it inapplicable to s 459G(2) (dealing with the need for applications for statutory demands to be made within 21 days of the service of a statutory demand); BP Australia Ltd v Brown (2003) 58 NSWLR 322 which held that the time limits imposed on the bringing of a claim for orders relating to a voidable preference could not be retrospectively enlarged; and, Newtronics Pty Ltd (Receivers and Managers Appointed) (in liq) v Gjergja (2008) 219 FLR 1 which held that the former s 1317HD of the Corporations Law 1989 (Cth), which required that claims for compensation for breach of civil penalty provisions be commenced within six years, was also not susceptible to extension under s 1322(4)(b). 22 The third respondent sought to distinguish these decisions because each involved a time limit imposed using wording which included the emphatic language "may only" (be begun) whereas s 601MA(2) used the word "must". The analysis underpinning all of these decisions does not, however, turn only on a particular form of words. Rather each involves the application of the principle enunciated by Gavin Duffy CJ and Dixon J in Anthony Horden and Sons Limited v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1 at 7: When the Legislature explicitly gives a power by a particular provision which prescribes the mode in which it shall be exercised and the conditions and restrictions which must be observed, it excludes the operation of general expression in the same instrument which might otherwise have been relied upon for the same power. 23 No doubt, the particular words have their parts to play. Structural observations in each case - such as the existence of particular extension regimes already existing which would be rendered otiose by s 1322(4)(d) - appear to have been more significant. In each of the cases referred to by the third respondent there was such an extension regime. In the third respondent's favour there is not one in the case of s 601MA(2). 24 Be that as it may I am not prepared to assume that it is sufficiently certain that s 601MA(2) will be held to be susceptible to extension under s 1322(4)(d). The question for me is not whether s 601MA(2) may be waived or, even, whether s 1322(4)(d) could be available to extend the limitation period. The question, rather, is whether the proposed discontinuance would be fair and reasonable in the circumstances. To answer that question requires a balancing of a number of factors including, on the one hand, the risk that the class members may not be able to recommence within the limitation period and the attendant risk that s 601MA(2) may be construed to go to the Court's power and be capable neither of waiver nor extension and, on the other hand, the value of the rights being potentially lost. 25 I would assess the risk of the former as being towards the lower end of the spectrum but, that said, neither trivial nor insubstantial. As for the latter, the third respondent and Wellington have proved nothing about the value of the claim against the third respondent. That suit may be worth 20 cents or $200 million for all the evidence discloses. The third respondent and Wellington's application therefore carries with it some risk that claims of unknown value will be forever lost. I do not think, in that circumstance, that I can conclude that discontinuance of the present representative proceeding could be fair or reasonable. I do not discount the benefit which the applicants are said to obtain from the agreement to discontinue - voluntary provision by the third respondent and Wellington of the Fund's documents - but I cannot weigh that advantage against the imponderable thrown up by the absence of evidence about the value of the claim and the risk attending the statute bar. 26 Properly to accede to the present application would have required close consideration of: (a) the value to class members of the rights obtained under the agreement; (b) the extent to which that value is being delivered; and (c) the legal risks of discontinuance. 27 I should say in relation to (b) that such an analysis is distinct from the question arising in the context of specific performance of whether Wellington is ready, willing and able to perform the agreement. The issue is, instead, the more substantive one of whether what has been done is a sufficiently beneficial arrangement from the class members' perspective to justify granting approval of the discontinuance with all that it entails. 28 Where the Court is effectively discharging a beneficial supervisory jurisdiction there is much to be said for the view that it will, at least in practice, be difficult to accede to applications such as the present one without some evidence as to what the effect on the class members of the suggested discontinuance will be. Further, the utility of such evidence is likely to be greatly enhanced if given by a person having some independence from the relevant respondent. The absence of such evidence in the present case means that I can have little confidence that some substantive harm might not be visited upon class members if approval were to be granted. 29 I should say, for completeness, that no argument was advanced by the third respondent or Wellington that the class members were not bound by the terms of the agreement since they were not parties to it. 30 In those circumstances, I decline to grant approval to the discontinuance. It follows that the agreement is incapable of being specifically enforced. Accordingly, I decline to compel the applicants to file a notice of discontinuance. 31 The amended notice of motion of 2 December 2009 filed by the third respondent and Wellington should be dismissed with costs. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.

Mercedes Holdings Pty Limited v Waters

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Judgment (12 paragraphs)

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Cases Cited (9)

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