Michael Jeffrey Hawksford & Ors v Brett Paul Hawksford & Ors;Brett Paul Hawksford & Ors v Michael Jeffrey Hawksford & Ors

CATCHWORDS : CORPORATIONS - Membership, rights and remedies - Members' remedies and internal disputes - Proceedings on behalf of company by member - Progression of proceedings no. 4348/04 and proceedings no. 3487/05 deadlocked by failure of natural parties to resolve question of corporate parties' representation - Where both proceedings have consumed substantial judicial resources and threaten to continue to do so - Whether exercise of Court's powers to facilitate just, quick and cheap resolution of real issues in both proceedings inconsistent with Chapter 2F Corporations Act 2001 (Cth) - s 79 Judiciary Act 1903 (Cth) considered - Held that exercise of Court's powers under s 61 Civil Procedure Act 2005 (NSW) and s 23 Supreme Court Act 1970 (NSW) not inconsistent with Corporations Act - Order that each natural party have leave to defend, on behalf of the corporate parties, claims which the opposite natural party is bringing against the corporate parties.

Corporations Act 2001 (Cth) LEGISLATION CITED : Judiciary Act 1903 (Cth) Supreme Court Act 1970 (NSW) Civil Procedure Act 2005 (NSW)

CASES CITED : Hawksford v Hawksford [2005] NSWSC 463

Michael Jeffrey Hawksford & Ors v PARTIES : Brett Paul Hawksford & Ors; Brett Paul Hawksford & Ors v Michael Jeffrey Hawksford & Ors

COUNSEL : Plaintiffs: G K J Rich (3487/05) Defendants: A Tsekouras (3487/05)

SOLICITORS : Plaintiffs: Clayton Utz Defendants: Evangelos Patakas & Associates

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

3487/05 Michael Jeffrey Hawksford & Ors v Brett Paul Hawksford & Ors 4348/04 Brett Paul Hawksford & Ors v Michael Jeffrey Hawksford & Ors JUDGMENT 1 HIS HONOUR: Proceedings no. 3487 of 2005 are before me for directions. These proceedings are a consequence of orders made by Campbell J in proceedings no. 4348 of 2004 (Hawksford v Hawksford [2005] NSWSC 463 ("the 2004 proceedings")). In the 2004 proceedings, the plaintiffs are Mr Brett Hawksford and Brett Hawksford Management Pty Ltd. The allegations in the 2004 proceedings are summarised in Campbell J's reasons and I need not repeat his Honour's summary. 2 It suffices to say that Mr Brett Hawksford and his company seek relief under an agreement of 30 October 1991 entered into between Mr Michael Hawksford, Mr Brett Hawksford and Bremick Pty Ltd. Amongst other things, Mr Brett Hawksford claims orders to compel Bremick and BMB Investments Pty Ltd to pay dividends. Orders are also sought to require Bremick to pay Mr Brett Hawksford certain moneys representing the value of benefits said to have been obtained by Mr Michael Hawksford. 3 On 16 May 2005, Campbell J held that the solicitor then purporting to represent the second and third defendants in the 2004 proceedings, that is, purporting to represent Bremick and BMB Investments, did not have authority from those companies to do so. Consequential orders were made. 4 In the course of Campbell J's judgment, his Honour noted various steps which might be available to Mr Michael Hawksford to break the deadlock which exists in the management of Bremick and BMB Investments so as to enable them to defend the claims brought against them in the 2004 proceedings. 5 Campbell J referred to the powers available under ss 236 and 237 of the Corporations Act 2001 (Cth) which his Honour said, clearly correctly, extend to the conduct of the defence of an action on behalf of a company which is being sued. His Honour also referred to powers which may be available pursuant to ss 232-234 of the Corporations Act if the requirements of s 232(d) or (e) are met, that is, either that the company's affairs are being conducted in a manner contrary to the interests of the members as a whole, or in a way which is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member. His Honour also referred to s 132(4) of the Corporations Act and the possibility of appointing a receiver and manager of some or all of the company's assets. 6 Since 16 May 2005, the 2004 proceedings have made little, if any, progress. I attribute this to the fact that there has been no resolution of the question as to how, if at all, the second and third defendants in those proceedings, that is, Bremick and BMB Investments, should be represented. 7 On 15 June 2005, Mr Michael Hawksford and companies associated with him commenced separate proceedings no. 3487 of 2005 by the filing of an originating process ("the 2005 proceedings"). Put in very general terms, in that application Mr Michael Hawksford seeks orders for the convening of annual general meetings of each of Bremick and BMB Investments and declarations that the entitlement of the members of those companies to appoint directors is governed by the constitutions of those companies and the relevant provisions of the Corporations Act, and not by the agreement of 30 October 1991. 8 In the 2005 proceedings, Mr Michael Hawksford seeks a declaration that he, as the first named joint holder of certain shares held in the joint names of Messrs Michael and Brett Hawksford, is entitled to vote the shares in accordance with article 6 of those companies' constitutions. If Mr Michael Hawksford is entitled to that relief, then the deadlock in the representation of Bremick and BMB Investments in the 2004 proceedings would be resolved. 9 However, by way of defence and cross-claim to that action, Mr Brett Hawksford raises in substance the issues which arise in the 2004 proceedings. At the risk of oversimplification, Mr Brett Hawksford answers that claim by saying that the attempted reliance on article 6 of the companies' constitutions, assuming it to have the construction contended for by Mr Michael Hawksford, itself involves a breach of the shareholders' agreement of 30 October 1991. 10 In his originating process in the 2005 proceedings, Mr Michael Hawksford claims, in the alternative, an order under s 233 of the Corporations Act authorising him to defend the interests of Bremick and BMB Investments in their defence of the 2004 proceedings, and to prosecute cross-claims in those proceedings in their names. One such cross-claim was purportedly brought in the 2004 proceedings by Bremick, acting on the instructions of Mr Michael Hawksford, which claimed indemnity or contribution in respect of moneys paid by Bremick pursuant to a guarantee and other securities to which Mr Brett Hawksford was a co-surety. 11 The originating process in the 2005 proceedings also sought, in the alternative, the appointment of a receiver to the causes of action identified in the cross-claim in the 2004 proceedings. No application was made for leave to bring proceedings on behalf of Bremick or BMB Investments pursuant to s 237 of the Corporations Act, nor was any application made pursuant to s 237 of the Corporations Act for leave to defend the 2004 proceedings on behalf of Bremick or BMB Investments. 12 Mr Michael Hawksford accepts that the claims under ss 232 and 233 of the Corporations Act, which raise questions of oppression, involve broad factual issues and raise discretionary considerations, such that those claims are not amenable to resolution as a separate question in advance of the hearing of the other issues in the 2005 proceedings. 13 The filing of the originating process in the 2005 proceedings prompted the filing of numerous interlocutory processes in those proceedings by Mr Brett Hawksford seeking substantive orders. He filed an interlocutory application for leave pursuant to s 237, or alternatively under ss 232 and 233, of the Corporations Act to intervene on behalf of Bremick and BMB Investments in the 2004 proceedings to bring an action for an account of all funds expended by those companies in their defence of those proceedings, or in conducting a cross-claim in those proceedings. He also sought an order under s 237 for leave to represent the companies so as to enable them to give discovery in those proceedings. 14 Mr Brett Hawksford brought a second interlocutory process in the 2005 proceedings claiming substantive relief in relation to the conduct of any general meeting of Bremick or BMB Investments, including a declaration that the members of the companies were bound by the shareholders' agreement of 30 October 1991. 15 Mr Brett Hawksford has brought his own cross-claim in the 2005 proceedings. Amongst the relief sought in the cross-claim is a declaration that a clause of the shareholders' agreement conferring pre-emptive rights on either party to acquire the shares of the other would not be enlivened if an application were made by him for relief under s 233 of the Corporations Act. At present, the 2004 proceedings make no claim for relief on the grounds of alleged oppressive conduct. 16 I accept that the issues in the 2005 proceedings concerning the right of either director to represent the companies in the 2004 proceedings are not severable from the disputed questions of fact that underlie the balance of the issues in the 2005 proceedings. Moreover, the issues raised in the 2005 proceedings are enmeshed in the issues raised in the 2004 proceedings. 17 Accordingly, when the matter was before me on an application concerning discovery in the 2005 proceedings, I suggested to the parties that the sensible way forward was for each of them to consent to leave being given to one director to represent the companies in defence of claims brought against the companies by the opposite director, and for leave to be given to a director to bring proceedings on behalf of the companies against the opposite director. The proposal I advanced for the parties' consideration was that, in so doing, the costs of defending or bringing such a claim on behalf of the company would be paid by the director who had leave to represent the company in making that claim or in defending that claim. 18 The legal representatives of Mr Michael Hawksford indicated that he and the companies associated with him would consent to such a regime provided that, if and when the 2005 proceedings were determined, that determination would prevail over the proposed regime to the extent of any inconsistency. In other words, if, in the 2005 proceedings, it were determined that the deadlock could be broken by the voting of shares at an annual general meeting in the way for which Mr Michael Hawksford contends, then upon the deadlock being broken, it would be a matter for the companies, under the control of their boards, to decide what claims should be brought or defended, and if the companies chose not to bring certain proceedings, it would be open to the director who did not control the boards then to seek leave to bring proceedings under s 237 if so advised. 19 However, the defendants in the 2005 proceedings (Mr Brett Hawksford and his company) did not consent to the proposal which I suggested. The result is a procedural morass. The 2004 proceedings cannot go forward without the question of the corporate defendants' representation being resolved. 20 Limited relief is sought by Mr Brett Hawksford for leave to represent the companies in the 2004 proceedings. He contends that the corporate defendants in those proceedings should be entering submitting appearances. However, it is clear that the companies would have an interest in those proceedings which was separate from the interest of Mr Michael Hawksford in relation to the relief claimed. 21 Mr Michael Hawksford seeks leave to bring proceedings on behalf of the companies and to defend proceedings on their behalf, but does not seek that relief under s 237 of the Corporations Act. Nonetheless, Mr Michael Hawksford is prepared to consent to orders giving him leave to intervene in the 2004 proceedings on behalf of the companies to defend the claims brought against them, and that he be granted leave to bring cross-claims in the 2004 proceedings, on behalf of the companies, on terms that he bear the costs of defences and cross-claims until further order. 22 Mr Michael Hawksford is also prepared to consent to orders pursuant to s 237 of the Corporations Act giving leave to Mr Brett Hawksford to bring cross-claims in the 2004 proceedings, on behalf of those companies, against Mr Michael Hawksford, or the other plaintiffs in the 2005 proceedings, and against Mr Timothy Daley, and to defend any claims brought against the corporate defendants by Mr Michael Hawksford, on terms that Mr Brett Hawksford bear the costs of the companies' defences and cross-claims, provided that those orders do not prejudice the parties' rights to the relief sought in the 2005 proceedings. 23 Whilst Mr Michael Hawksford is prepared to consent to such orders, he has not actively sought them. Mr Brett Hawksford does not consent to such orders. He would consent to a more limited grant of leave to Mr Michael Hawksford under s 237 of the Corporations Act. However, Mr Michael Hawksford does not seek such a limited grant of leave. 24 Neither of the parties contested the proposition that the issues raised in the 2005 proceedings are inextricably enmeshed in the issues raised in the 2004 proceedings. Accordingly, it seems to me that as matters presently stand, both proceedings will grind to a halt, or will become even more complicated, unless the question of representation of the corporate parties is resolved. 25 As matters presently stand, that question cannot be resolved without a trial of all the matters which would arise in the 2004 proceedings as well as in the substantive applications made in the 2005 proceedings. But the proceedings cannot be tried without the question of representation being resolved. 26 How is that impasse to be resolved? Section 236 of the Corporations Act provides that "the right of a person at general law to bring, or intervene in, proceedings on behalf of a company is abolished." Section 237 then provides the circumstances in which "a person may apply to the Court for leave to bring, or to intervene in, proceedings". 27 A question which necessarily arises is whether the only circumstances in which a person may apply for leave, or be given leave, to bring, or to intervene in, proceedings are the provisions contained in Chapter 2F of the Corporations Act, or in other express statutory provision in the Corporations Act, or whether the Court has a wider power to address that question. 28 Chapter 2F, amongst other things, deals with rights which a person may have to bring or defend proceedings on behalf of a company. The question which is now before me is not just a question of the parties' rights, but is a question which affects not only the parties themselves, but the administration of justice. 29 It is not only the parties presently before the Court, but all litigants in this Court, who have an interest in the real issues in these two proceedings being resolved as quickly and as cheaply - certainly as quickly - as time permits. It is not in the interests of the public for the judicial resources of the State to be repeatedly consumed in endeavouring to bring order to the resolution of this dispute. 30 I do not consider that the parties, for what may appear to them to be good tactical reasons, should be permitted to delay the resolution of both proceedings in the way they have to date. 31 Except so far as the laws of the Commonwealth have otherwise provided, the laws of this State in relation to matters of practice and procedure are engaged by s 79 of the Judiciary Act 1903 (Cth). Those laws include the jurisdiction of the Court to do what is necessary for the administration of justice in New South Wales (Supreme Court Act 1970 (NSW), s 23) and to give such directions as the Court thinks fit for the speedy determination of the real issues between the parties (Civil Procedure Act 2005 (NSW), s 61). 32 In the peculiar circumstances of this case, which it is to be hoped will never be repeated, it is necessary in order for the real issues to be able to be determined to make orders which are not sought by either party, although in certain forms not opposed by them, for them to represent the interests of the deadlocked companies. 33 I do not consider that the exercise of powers under s 61 of the Civil Procedure Act, or s 23 of the Supreme Court Act, is inconsistent with the Corporations Act. Nor do I consider that the Corporations Act makes other provision, in terms of s 79 of the Judiciary Act, which precludes the exercise of those powers. 34 The question is whether I should make the wider orders in respect of the grant of leave to Mr Michael Hawksford and Mr Brett Hawksford to represent the interests of the companies, as put forward in short minutes of order prepared by the solicitors for Mr Michael Hawksford, or whether I should make orders for the grant of leave on a more narrow basis, as proposed by the solicitors for Mr Brett Hawksford. 35 Mr Brett Hawksford's proposal seems to be affected by his concern that Mr Michael Hawksford not have leave to bring proceedings on behalf of the companies against him in relation to issues which prompted the making of orders for discovery in the 2005 proceedings of documents relating to payments which it is suggested may have been made to Mr Brett Hawksford, or companies associated with him, by competitors of the companies. 36 It appears to be suggested that any claims which Mr Michael Hawksford might wish the companies to bring in relation to that matter would not be made in good faith, and that no such claims should be brought unless Mr Michael Hawksford first seeks and obtains leave under s 237 of the Corporations Act to bring such claims. 37 No such claims have yet been brought, as the discovery, which is at least supportable as a claim for preliminary discovery, is yet to be given. There is nothing to indicate that if such claims were sought to be brought, they would be brought otherwise than in good faith. 38 If it were proposed to amend any of the current processes to make such a claim, and if it were clear that any such claim was without serious foundation or was vexatious, then it would in any event be liable to be struck out. I do not consider that the possibility of leave being sought to amend any process in order to bring such a claim warrants the making of the more limited orders proposed in the short minutes suggested by Mr Brett Hawksford. 39 Another difficulty with Mr Brett Hawksford's short minutes is that they proceed on the assumption that the corporate defendants should be taking only a submitting role in the 2004 proceedings. I do not accept that I should proceed on that assumption. As I have said, the corporate defendants have interests in those proceedings which are separate from the interests of Mr Michael Hawksford, and which may well require active representation on the part of those parties. 40 In my view, it is clear that the 2004 proceedings and the 2005 proceedings should be heard together, provided neither party is permitted to unduly delay the resolution of those proceedings. Whilst both parties profess a desire to have the substantive proceedings brought to a resolution, the way each has conducted the proceedings gives me cause to doubt the accuracy of that profession. 41 However, the Court has its own responsibility in the interests of the wider community to ensure, so far as it can, that the proceedings are brought to hearing so that the dispute between the parties is quelled. 42 In my view, I have power, not under s 237 of the Corporations Act, but in supervising the conduct of the proceedings so as to ensure that the real issues are determined, to make orders giving leave to each of Mr Michael Hawksford and Mr Brett Hawksford to bring and defend claims which the opposite party is bringing against the companies, and to direct that each of them bear the costs of such intervention. 43 I propose to exercise that power so as to bring the 2004 proceedings and the 2005 proceedings, so far as possible, to a position where they can both be heard. For these reasons I make the following orders:

I order that until further order of the Court, the first named plaintiff in proceedings 3487 of 2005 ("the 2005 proceedings"), Mr Michael Jeffrey Hawksford ("Michael Hawksford"): (a) be granted leave to intervene in proceedings number 4348 of 2004 ("the 2004 proceedings") on behalf of the second defendant, Bremick Pty Ltd ("Bremick"), and the third defendant, BMB Investments Ltd ("BMB"), for the purpose of taking responsibility on behalf of Bremick and BMB for the defence of any claims brought against them in those proceedings by one or more defendants in the 2005 proceedings; (b) be granted leave to bring cross-claims in the 2004 proceedings on behalf of Bremick and BMB against one or more of the defendants in the 2004 proceedings, including, but not limited to, the present cross-claimant, Bremick, in the 2004 proceedings; and (c) be authorised and empowered to retain solicitors and counsel to conduct the defence of the cross-claims referred to in orders 1(a) and (b) above on behalf of Bremick and BMB, to give discovery and permit inspection on behalf of Bremick and BMB, and to make any claims for legal professional privilege that may arise in respect of those claims.

Order that until further order, Michael Hawksford is to bear and pay Bremick and BMB's costs of the defences and cross-claims referred to in order 1(a) and (b) above.

Order that until further order, the first defendant in the 2005 proceedings, Brett Paul Hawksford ("Brett Hawksford"): (a) be granted leave to bring cross-claims in the 2004 proceedings on behalf of Bremick and BMB against one or more of the plaintiffs in the 2005 proceedings and Mr Timothy Daley ("Mr Daley"); (b) be granted leave to intervene in the 2004 proceedings on behalf of Bremick and BMB for the purpose of taking responsibility on behalf of Bremick and BMB for the defence of any claims brought against them in those proceedings by one or more of the plaintiffs in the 2005 proceedings; (c) be authorised and empowered to retain solicitors and counsel to conduct the defences of the cross-claims referred to in orders 3(a) and 3(b) above on behalf of Bremick and BMB, to give discovery and permit inspection on behalf of Bremick and BMB, and to make any claims for legal professional privilege that may arise in respect of those claims.

Order that until further order of the Court, Brett Hawksford is to bear and pay Bremick and BMB's costs of the defences and cross-claims referred to in orders 3(a) and 3(b) above.

Direct that the time by which Brett Paul Hawksford and Brett Hawksford Management Pty Ltd is to give discovery of the documents which are annexure A to the interlocutory process filed on 13 July 2006 in the 2005 proceedings, as ordered on 2 November 2006, is to be 25 January 2007.

Direct that by 25 January 2007, the parties in the 2004 proceedings exchange categories of documents for discovery.

Direct that by 2 March 2007, the parties in the 2004 proceedings give discovery of the categories of documents requested by the opposite party, unless such categories of documents have been objected to. If such categories have been objected to, and if such objection has not been resolved, then such discovery need not be given by 2 March 2007 in respect of categories which have been objected to, provided application has been made to the Court in relation to such objections by that date.

Direct that by 13 April 2007, the plaintiffs in the 2004 proceedings and the cross-claimants in the 2005 proceedings file and serve any affidavits proposed to be relied upon in the 2004 proceedings, or in any of their claims in the 2005 proceedings in which substantive relief is sought.

Direct that by 11 May 2007, the defendants in the 2004 proceedings file and serve affidavits proposed to be relied upon either in the 2004 proceedings or in relation to the substantive claims for relief in the 2005 proceedings.

Direct that the 2004 and the 2005 proceedings be listed before the Corporations Judge on 14 May 2007, either for further directions or, if both the 2004 and the 2005 proceedings are ready for hearing, for the purposes of fixing a hearing date, or both.

Grant liberty to the fourth defendant in the 2004 proceedings, Mr Timothy Daley, to apply to vary these directions.

Direct that the solicitors for the plaintiffs in the 2004 proceedings notify Mr Daley of these directions and orders.

Grant liberty to apply on seven days' notice to the Corporations Judge in either the 2004 or the 2005 proceedings.

Direct that if any application is made in the 2004 or the 2005 proceedings, that each proceeding be listed at that time so that the conduct of both proceedings proceeds in tandem. 44 If any party proposes to amend any process in either the 2004 or the 2005 proceedings, then any such proposed amendments, as soon as they have been formulated, should be served on the opposite party. If consent to the proposed amendments is not obtained, the party proposing to amend should exercise the liberty to apply to seek leave to make the amendment as soon as possible. 45 The costs of today will be costs in the proceedings.

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