National Mutual Holdings Pty Ltd v The Sentry Corporation

The background to the application for a transfer of the proceedings As regards the application for transfer, it is necessary before dealing with the competing contentions to set out very briefly something of the nature of the principal proceedings. These proceedings relate to a Part A Statement and Offer dated 17 July 1998. The offeror and party responsible for the Part A Statement is the first respondent, Atlantic International Entertainment Australia Pty Ltd ("AIEA"). The target of the take over offer is the sixth respondent, COMS21 Ltd ("COMS21"). COMS21 delivered its Part B Statement on 24 July 1998. The Part B Statement was authorised by the second, third, fourth and fifth respondents who were all directors of COMS21. It recommended acceptance of the AIEA offer. That offer presently expires on 26 October 1998. AIEA may extend the offer period prior to its expiration on that date. However, it has not yet done so. On 12 August 1998, the second applicant, Felscot Pty Ltd ("Felscot") announced its intention to make its own takeover bid for COMS21. The provisions of the Corporations Law require Felscot to dispatch its Part A Statement and offer to the shareholders of COMS21 by 12 October 1998. Felscot was required to serve its Part A Statement on COMS21 by 28 September 1998. This did not occur. I was informed that Felscot had sought from the Australian Securities and Industries Commission ("ASIC") an extension of time within which to do so. I was also told that Felscot's application was likely to be determined by the ASIC shortly. Once Felscot's Part A Statement is received by COMS21, its Board will be required to reconsider its previous recommendation in relation to the AIEA offer. The result of that reconsideration could render the principal proceedings, which involve an attack by the applicants upon both the AIEA Part A Statement, and the COMS21 Part B Statement, unnecessary. Whatever defects there may be in those critical documents may be overtaken by the fresh recommendations made by the COMS21 Board in response to Felscot's offer. It is for that reason that it appears to be common ground that the question whether the principal proceedings should be granted an expedited hearing is best left until after the Felscot Part A Statement has been received, and considered. When it comes to the question of transfer, however, the respondents contend that it is preferable that this issue be determined now. They submit that in the event that the COMS21 Board adheres to its view that the AIEA takeover offer should be accepted, there is likely to be a flurry of activity on the part of the applicants seeking to prevent that takeover from proceeding. It is contended that it would be very much in the interests of the orderly conduct of the ensuing litigation to have the judge, who ultimately hears the principal proceedings, involved in all interlocutory steps, including the conduct of directions hearings. This would ensure that the matter can then be dealt with as expeditiously as possible.

The issues in the principal proceedings The applicants contend that the Part B Statement is misleading and deceptive, and omits a number of matters which are material to the decision which the shareholders of COMS21 must make as to whether or not to accept the AIEA offer. The matters said to be misleading or deceptive relate mainly to the value of the shares in AIEA's parent company, Atlantic International Entertainment Ltd ("AIE") which AIEA is offering in return for the shares in COMS21. AIEA is offering one (1) AIE fully paid ordinary share for ten (10) COMS21 shares. The Part B Statement discloses that as at 23 July 1998, AIE shares traded on what is known as the NASDAQ OTCBB (Over the Counter Bulletin Board Market) at US$3.9375 per share. At an A$/US$ exchange rate of 62.37 this was said to represent an effective offer price of $0.63 per COMS21 share. The closing price of COMS21 shares on the Australian Stock Exchange on 23 July 1998 was $0.49. The applicants contend in their statement of claim that the NASDAQ OTCBB does not set a true market value for the AIE scrip. That small and highly specialised market is a quotation service which has neither the quantitative nor qualitative listing and maintenance standards which are monitored and enforced by stock exchanges such as the American exchange, and the Australian Stock Exchange. Trading on the NASDAQ OTCBB is largely unregulated and can easily present a distorted picture of the true market value of a particular stock. Though the Part B Statement makes a number of references to the risks associated with relying upon the NASDAQ OTCBB trading figures, the applicants contend that these are presented in a manner which is misleading and deceptive, and which fails to bring home to COMS21 shareholders a number of matters that might influence their decision as to whether or not to accept the AIEA offer. The relief sought by the applicants in the principal proceedings is essentially injunctive in nature. They seek an injunction requiring the first respondent, AIEA, to send to each shareholder in COMS21 a notice suspending the Part A Statement recommendation contained in the Part B Statement. They seek also an injunction requiring the second to sixth respondents to send to each shareholder in COMS21 a notice suspending the recommendation contained in the Part B Statement. Finally, they seek a mandatory injunction requiring the second to sixth respondents to send to each shareholder in COMS21 a notice which they contend will contain the information which would rectify the defects in the existing Part B Statement. The applicants also seek declaratory relief.

The respondents' contentions in support of transfer In support of their application for transfer, the respondents rely upon the following matters: (a) the second, third, fourth and fifth respondents, all directors of COMS21, reside in New South Wales; (b) COMS21 has its registered office in New South Wales. It has no offices in Victoria and does not carry on business in this State, (c) The first respondent, AIEA, and its solicitors are located in Brisbane. They consent to the principal proceedings being transferred to Sydney. (d) The registered office of the second applicant, Felscot, is in the ACT. The first applicant, Green, who is also a director of COMS21, resides in the ACT. The only connection between either applicant and Victoria is the location of their solicitors, Messrs Jerrard and Stuk. They are located in Melbourne. (e) The solicitors who represent the second to sixth respondents are located in Sydney. (f) The principal proceedings focus attention upon the role of KPMG Corporate Finance Pty Ltd in providing advice concerning the Part B Statement to the second to sixth respondents. The relevant KPMG Corporate Finance personnel are located in Sydney. (g) Most of the documents relevant to the principal proceeding are located in Sydney. (h) There have been no significant steps taken to date in the principal proceedings. It would be a relatively simple matter therefore to transfer those proceedings to New South Wales at this stage. During the course of his submissions, Mr Bannon SC for the second to sixth respondents emphasised the fact that the applicants' statement of claim included the allegation that each of the second to sixth respondents, by signing the Part B Statement and by authorising its dispatch to the shareholders of COMS21, had engaged in conduct that was misleading or deceptive or likely to mislead or deceive contrary to s 995(2) of the Corporations Law. Moreover the statement of claim alleged that each of those respondents had aided and abetted the breach by COMS21 of s 52 of the Trade Practices Act. It followed that the applicants had raised directly as an issue the state of mind of each of those respondents. Mr Bannon contended that this meant, as a matter of forensic reality, that each of those respondents would be expected to give evidence in the course of the trial of this matter. In addition, evidence would necessarily have to be adduced from those who had provided advice to the respondent directors in relation to the Part B statement. These advisors, who included both KPMG Corporate Finance personnel, and Messrs Harper Watson, the solicitors presently acting for the second to sixth respondents, were all located in New South Wales. Mr Bannon also submitted that these persons would be required not merely as witnesses, but would need to be involved on a constant basis in giving instructions regarding preparation for the trial, and its conduct thereafter.

The applicants' contentions in opposing transfer The applicants oppose the application for transfer. They contend that it is appropriate that these proceedings, having been instituted in Victoria, remain in the Victorian Registry. They rely upon the following matters: (a) Felscot, the second applicant, holds 14.7 million shares in COMS21. Accordingly, it has a real and substantial interest in the outcome of this litigation. Felscot is incorporated in Victoria. (b) Felscot's solicitors are located in Melbourne. Those solicitors do not conduct their practice in Sydney. (c) The first applicant, a director and the Chief Executive Officer of COMS21, and a shareholder in both COMS21 and Felscot, desires the proceeding to be heard in Melbourne. (d) The seventh respondent, is the President of AIE, the parent company of AIEA. He is also a director of AIEA. He resides in the United States of America. (e) AIEA is incorporated in Queensland. COMS21 is incorporated in the Australian Capital Territory. (f) This is not a "witness" case. The issues raised in the application and statement of claim are essentially legal in nature. By and large they involve questions of construction of the Corporations Law, and save for some evidence to be given by various experts who are likely to reside in the United States, do not depend to any significant degree upon findings of fact. (g) To the extent that the evidence of certain witnesses may be required, video link facilities can be utilised to minimise, or avoid, any inconvenience. (h) The proceeding is wholly federal in nature. The relevant statutory provisions are those contained within the Corporations Law and the Trade Practices Act. The applicants also contend, in the alternative, that the respondents' application for transfer is premature. The respondents have not yet filed their defences. It is not yet clear what eventually will be the issues in dispute. In particular, it is not yet clear whether there will, in fact, be a need for any witnesses to be called, and if so, who those witnesses might be. In their alternative submission, the applicants contend that the respondents' application for transfer should not be granted until these matters have crystallised. The submission is often made in opposition to an application for transfer that the application is premature. In some cases, there is obviously force in that contention - see for example Churchman v Alba Gelati Pty Ltd (unreported, Federal Court, Tamberlin J, 17 August 1998). The submission that this application is premature does not, however, seem to me to be persuasive given the somewhat unusual circumstances of this case. Having regard to the operation of the individual docket system which now governs the conduct of proceedings in this Court, it is highly desirable in a case where it is likely that an order for an expedited hearing will soon be made (if the proceedings do not resolve) that the venue for the trial be fixed at the earliest practicable opportunity. There have been no steps taken in the proceedings to this point which render it inappropriate to transfer them at this stage, if the case for transfer is otherwise made good. During the course of his submissions, Mr Glick for the applicants, challenged Mr Bannon's assertion that the trial of this matter would inevitably require a series of factual issues to be resolved, and that the respondents would be required to call a significant number of witnesses who reside in New South Wales to give evidence in the proceedings. Rather, Mr Glick contended, the only evidence of any consequence likely to be required was evidence from United States based experts who could comment upon whether or not there was any substance to the specific allegations concerning the supposedly misleading or deceptive nature of the Part B Statement insofar as it deals with the trading of AIE shares on the NASDAQ OTCBB. The question whether these proceedings are conducted in Victoria or in New South Wales is, so far as those witnesses are concerned, a matter of relative indifference. Mr Glick contended that a sensible method of resolving the dispute between the parties would be to hive off the question whether the manner in which the Part B Statement dealt with the value of AIE scrip was objectively misleading (a matter which could be resolved essentially as a question of law, though with the assistance of United States experts as to how that small and highly specialised market, the OTCBB, operates in that country). If that course were to be followed, Mr Glick contended, there would be no reason to transfer these proceedings from the Victorian Registry. Mr Glick stated from the Bar table that although Felscot was registered in the ACT, it carried out all of its business operations in Victoria. He stated also that Felscot was, in effect, run by first applicant's brother. That brother resided in Melbourne. Mr Bannon, as he was entitled to do, took objection to these unsupported statements. Mr Glick then sought leave to file an affidavit confirming his instructions in relation to these issues. I granted that leave, but on terms which would protect the rights of the respondents. Such an affidavit, sworn by the first applicant's brother, was filed the next day, 2 October 1998. In arriving at my decision, I have taken into account the contents of that affidavit.

The principles which govern applications for transfer The principles which are recognised in this Court as governing applications to transfer proceedings from one registry to another are well established. They are set out in the judgment of the Full Court of the Federal Court in National Mutual Holdings Pty Ltd v The Sentry Corporation (1988) 19 FCR 155, where, after an extensive review of the authorities, the Court rejected the proposition that there should not be a change of venue unless the Court was satisfied that there is a preponderance of convenience in support of the change. The Court observed at 162: "The power conferred on the Court or a judge by s 48 is in terms wholly unfettered. It should be exercised flexibly having regard to the circumstances of the particular case. It would be regrettable and unwise if the Court were to circumscribe the general power conferred by s 48 with inflexible rules or impose inelastic constraints upon its exercise. As the power may be exercised subject to conditions, the Court or a judge is in a position to mould orders under the section to take account of the many and varied circumstances that arise in particular cases. The power conferred by s 48 recognises the national character of this Court. The factors which the Court is entitled to take into account in considering whether one city is more appropriate than another for interlocutory hearings or for the trial itself are numerous. The Court must weigh those factors in each case. Residence of parties and of witnesses, expense to parties, the place where the cause of action arose and the convenience of the Court itself are some of the factors that may be relevant in particular circumstances. The balance of convenience will generally be a relevant consideration, but not necessarily determinative of each case. A party commences a proceeding by filing an application in a particular registry of the Court. If that party or another party wishes to have the proceeding conducted or continued in another place he may apply to the Court for an order under s 48 or O 10, r 1(2)(f) or O 30, r 6 as the case may be. There is no onus of proof in the strict sense to be discharged by the party seeking to conduct or continue the proceedings elsewhere. It should be noted that the Court may exercise its powers under O 30, r 6 either on the application of a party or of its own motion. The Court must, however, be satisfied, after considering all relevant matters, that there is sound reason to direct that the proceeding be conducted or continued elsewhere. Its starting point is that the proceeding has been commenced at a particular place. Why should it be changed? On the one hand, if the party who commenced the proceeding chose that place capriciously the Court would be justified in giving no weight to the choice of place. At the other end of the scale, a proceeding may have continued for some time at the place of commencement with many steps having been taken there, for example, filing of pleadings and affidavits, discovery and inspection. Due weight would be given by the Court to such matters before directing that the proceeding should continue at a different place. The balance of convenience is important, but its weight must vary from case to case. Ultimately the test is: where can the case be conducted or continued most suitably bearing in mind the interests of all the parties, the ends of justice in the determination of the issues between them, and the most efficient administration of the Court. It cannot and should not, in our opinion, be defined more closely or precisely." See also Andrew & Frewin Pty Ltd v Arrow Ltd (unreported, Full Court of the Federal Court, 6 June 1990).

Conclusions I accept that the starting point is that the proceedings have been commenced in Victoria, and that there should be some reason demonstrated for altering the status quo. I do not accept Mr Bannon's submission that the applicants chose Victoria to commence these proceedings "capriciously". The term "capricious" is defined in the Oxford English Dictionary as "characterised by play of wit or fancy; humorous, fantastic, guided by whim rather than by judgment; arbitrary". Had these proceedings been instituted in Western Australia, the term "capricious" might well have been applicable. There are, however, sufficient links between Victoria and the subject matter of this litigation to render it a misuse of language to describe the applicants' choice of venue in this way. That is not, however, the end of the matter. Having read carefully the applicants' pleadings, and having also read both the Part A and Part B Statements which are the subject of these proceedings, it seems to me that there is a real likelihood that, if this litigation proceeds, it will be necessary for the respondents to call a substantial number of witnesses who reside in New South Wales to give evidence. Mr Glick's proposal that the litigation be conducted in stages, with the legal arguments being dealt with first, may ultimately prove to be feasible, though I note that such a course is opposed at this stage by the second to sixth respondents, and may ultimately also be opposed by the first and seventh respondents. The question whether that course should be adopted, however, is a matter which can readily be addressed by a judge to whom this case is allocated if it is transferred to the New South Wales Registry. As matters stand, the great majority of witnesses who are likely to be called are resident in New South Wales. They are significant in number. Very few, perhaps one or two only, of the witnesses likely to be called by the applicants, reside in Victoria. The expense and inconvenience involved in having those many New South Wales witnesses come to Victoria and, in some cases, remain here for some time while waiting to give their evidence, significantly outweighs the burden imposed upon the applicants in having this matter transferred to New South Wales. The conduct of the respondents and their legal and financial advisors in relation to the preparation of both the Part A and Part B Statements is central to these proceedings, as pleaded. The respondents' state of mind is also relevant in relation to whether the equitable relief sought by the applicants should be granted. The case is not one which in my view can fairly be described as raising questions of law only. While the principles which govern applications of this nature are not to be reduced to "counting heads", the burden imposed upon the respondents of conducting these proceedings in Victoria would be significantly greater than the burden imposed upon the applicants were they to be moved. That is a matter which, in the present case, weighs significantly in favour of transfer. I am not persuaded by Mr Glick's submission that the availability of video link facilities provides the solution to the present problem. Such technology can, in appropriate cases, be useful and can, at times, save unnecessary expenditure. See for example Barde AS v Oceanfast Ferries Pty Ltd (unreported, Federal Court, Tamberlin J, 2 May 1997) where his Honour regarded the availability of videolink facilities as a reason for declining to order transfer from the New South Wales Registry to Western Australia. That was an Admiralty matter, involving narrow factual disputes. Where serious questions of credibility are concerned, however, the value of videolink facilities is limited. I am satisfied that there are sound reasons for directing that these proceedings be conducted in New South Wales. The balance of convenience certainly favours their transfer to that State, and there is nothing to suggest that such a course would in any way be inimical to the interests of justice, or to the efficient administration of the Court. In many ways New South Wales is the natural forum for a case involving allegations such as are made here against a number of New South Wales based directors, and their advisors. It follows that I propose to order that the proceedings be transferred to the New South Wales District Registry.

Costs I have rejected the respondents' contention that it was capricious for the applicants to have brought these proceedings in Victoria. There is also some uncertainty as to how some of the matters canvassed before me will ultimately develop when this trial is heard. Moreover, one of the orders sought in the notice of motion, that which seeks an expedited hearing, was only belatedly not pursued, before me, and has been adjourned by consent. It seems to me, therefore, that I should reserve the costs of the respondents' notice of motion notwithstanding the fact that they have succeeded in obtaining the order for transfer which they sought. The orders of the Court are: 1. The application that the hearing of the proceedings be expedited be adjourned to a date to be fixed. 2. The proceedings be transferred to the New South Wales District Registry. 3. The costs of the respondents' notice of motion of 11 September 1998 be reserved.

I certify that this and the preceding eleven (11) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Weinberg

Associate: Dated: 8 October 1998 Counsel for the Applicants: Mr L Glick

Solicitor for the Applicants: Jerrard and Stuk

Solicitor for the First and Seventh Respondents: Mr R Smith

Solicitor for the First and Seventh Respondents: McCullogh Robertson

Counsel for the Second to Sixth Respondents: Mr A Bannon SC

Solicitor for the Second to Sixth Respondents: Harper Watson

Dates of Hearing: 17 September and 1 October 1998

Date of Judgment: 8 October 1998