Olson v Keefe

Federal Court of Australia|2019-03-13|Before: Lee J

The application for extension of time to seek leave to appeal from Orders 1-3 and 6 of the orders made by the primary judge on 16 October 2017 be granted, but the application for leave to appeal be dismissed.
The application for leave to appeal from the orders made by the primary judge on 18 December 2018 be dismissed.
The applicant pay the respondents' costs of the applications. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

A Introduction & The Proceedings 1 Before the Court is an application for an extension of time to bring an application for leave to appeal from an interlocutory decision of the primary judge, which had the effect of summarily dismissing and striking out parts of the applicant's amended statement of claim (2017 application). A further application is made for leave to appeal from orders of the primary judge made following a further interlocutory application, which resulted in a refusal of leave to file a further amended statement of claim (FASOC) (2018 application). 2 At the commencement of argument, the respondents agreed that the question of the substantive merits of the proposed appeal in relation to the 2017 interlocutory judgment was likely to be determinative of any application for extension of time. In these circumstances, I indicated that I would grant the extension of time. It followed that both applications for leave to appeal can be determined on what might broadly be described as their merits. 3 There were eight grounds of appeal identified in the draft notice of appeal in the 2017 application, and 11 grounds of appeal in the draft notice of appeal in the 2018 application. Some of these are not in fact, grounds of appeal at all; some overlap or express the same concept in different ways or at different levels of abstraction; and most were undeveloped in written and oral submissions. Unsurprisingly, the submissions before me focussed generally on whether the orders of the primary judge in summarily dismissing and striking out aspects of the claims as discussed below were arguably wrong, hence justifying a grant of leave and also whether a failure to grant leave would occasion an injustice. It is appropriate for me to deal with the applications in a manner consistent with the way in which they were presented in argument. 4 There is no need for me to tarry in setting out the relevant factual background in any detail. In an earlier interlocutory judgment, the primary judge outlined the nature of the proceedings and the matters in dispute: see Olson v Keefe [2017] FCA 101 at [6]-[18], [22]. 5 It suffices to note that in very general terms the proceeding arises out of the employment relationship between the applicant, Mr Olson, and the third respondent, Hilco Merchant Resources LLC (Hilco USA) and/or the fourth respondent, Hilco Merchant Australia Pty Ltd (Hilco Australia), its wholly owned subsidiary. The other relevant actors in the proceedings are the first respondent, Mr Michael Keefe, who at relevant times was the chief executive officer of Hilco USA and a director of Hilco Australia and the second respondent, Mr Lipoff, who was the "executive vice president" of Hilco USA, and was also a director of Hilco Australia. 6 Mr Olson's case, in essence, is that he was not paid certain entitlements owing under a contract of employment with either Hilco USA or Hilco Australia. Apart from a case claiming damages for breach of contract, Mr Olson also brings a case for statutory compensation arising from alleged breaches of the misleading and deceptive conduct norms contained in the Australian Consumer Law (ACL), and a "victimisation" case under s 1317AC of the Corporations Act 2001 (Cth) (Act). In addition to these cases, four additional causes of action have been agitated (Expanded Case), which are more controversial. They are as follows: (a) Mr Keefe and Mr Lipoff breached what are said to be fiduciary duties owed to Mr Olson to ensure the accounts of Hilco Australia reflected its true profitability (Fiduciary Duty Case); (b) Mr Lipoff is accessorily liable under s 1317AC of the Act (Accessorial Victimisation Case); (c) Hilco USA and/or Hilco Australia engaged in unconscionable conduct contrary to ss 20 or 21 of the ACL (Unconscionable Conduct Case); and (d) Hilco USA and/or Hilco Australia breached implied terms contained in the contract of employment: (i) to take all steps to ensure that the applicant could comply with his financial reporting obligations under the Act; and (ii) to act with "fidelity to the bargain" and accurately record the profits of Hilco Australia (Implied Term Case).

B The Relevant Procedural History 7 To date, the conduct of Mr Olson's case has not been crowned by unalloyed success. There have been three hearings before the primary judge in which Mr Olson has sought leave to agitate his Expanded Case: (a) the first hearing resulted in the primary judge summarily dismissing the Fiduciary Duty Case and the Accessorial Victimisation Case (Olson v Keefe (No 2) [2017] FCA 1168; (2017) 122 ACSR 395), this is the judgment the subject of the 2017 Application; (b) the second hearing ended with Mr Olson withdrawing his application to amend and paying the respondents' costs thrown away; and (c) the third hearing ended with the primary judge refusing leave to plead the Unconscionable Conduct Case and the Implied Term Case in the terms then proposed and not making an order allowing the Unconscionable Conduct Case to be repleaded (Olson v Keefe (No 3) [2018] FCA 2001), this is the judgment the subject of the 2018 Application.

C Applicable Legal Principles 8 The applicable principles attendant on an application for leave to appeal were not in dispute. I explained them in Nationwide News Pty Limited v Rush [2018] FCAFC 70 at [2]-[4] (in terms with which Allsop CJ and Rares J generally agreed) as follows: The principles informing the determination of whether to grant leave to appeal from a decision of a single judge of this Court are not novel. The starting point is that in exercising the power to grant leave, regard must be had to the statutory charge in s 37M(3) of the Federal Court of Australia Act 1976 (Cth) (Act) that the power must be exercised or carried out in the way that best promotes the overarching purpose, being the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. Consistently with the facilitation of a just resolution, an applicant must usually show that: (a) in all the circumstances, the decision to be appealed is attended with sufficient doubt to warrant its reconsideration on appeal; and (b) supposing the decision to be wrong, substantial injustice would result if leave were refused: Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 at 398-399 (Sheppard, Burchett and Heerey JJ). The sufficiency of the doubt in respect of the decision to be appealed and the question of substantial injustice bear upon each other so that the degree of doubt which is sufficient in one case may be different from that required in another. It has also been said that the considerations are cumulative such that leave ought not be granted unless each limb is made out: Rawson Finances Pty Ltd v Deputy Commissioner of Taxation [2010] FCAFC 139; (2010) 81 ATR 36 at 38 [5] (Ryan, Stone and Jagot JJ); Melbourne City Investments Pty Ltd v Treasury Wine Estates Ltd [2017] FCAFC 98; (2017) 252 FCR 1 at 4 [3] (Jagot, Yates and Murphy JJ). Additionally, consistent with the facilitation of a quick, inexpensive and efficient resolution is the principle which emerges from the oft-cited warning of Jordan CJ in In re the Will of F. B. Gilbert (Deceased) (1946) 46 SR (NSW) 318 at 323, that if a tight rein is not kept upon the interference with orders of judges at first instance in the exercise of discretion on a point of practice and procedure, the result will be "disastrous to the proper administration of justice". 9 To this I would only add that when it comes to evaluating Mr Olson's prospects of success, the Court is to consider the proposed appeal at a "reasonably impressionistic level" and assess whether the proposed appeal is "sufficiently arguable" or has "reasonable prospects of success": MZABP v Minister for Immigration and Border Protection [2015] FCA 1391; (2015) 242 FCR 585 at 597-598 [62]-[63] (Mortimer J). 10 With these principles in mind, it is appropriate to deal with each application in turn and, as noted above, given the way written and oral argument was presented, there is no necessity to deal with all draft grounds seriatim.

D 2017 Application 11 As I have already noted, there are two aspects to the 2017 application: the summary dismissal of the claim against Mr Lipoff and the strike out of additional aspects of the Expanded Case against the remaining respondents. 12 It was not suggested the summary dismissal was inappropriate in the event that what Senior Counsel for the applicants correctly characterised as the "thin" case against Mr Lipoff, which constituted solely the Fiduciary Duty Case and the Accessorial Victimisation Case, was otherwise liable to be struck out. If there was no reasonably arguable error in the striking out of these aspects of the case, then no independent complaint can be maintained as to summary dismissal of the case against Mr Lipoff. It is convenient to deal with both relevant aspects of the Expanded Case separately.

D.1 Fiduciary Duty Case 13 Any contention that it was inappropriate for the primary judge to strike out the Fiduciary Duty Case summarily does not bear impressionistic, let alone close, scrutiny. The fundamental problem identified by the primary judge at [52] was that on the material facts pleaded, there was simply no principled basis for a fiduciary relationship to be recognised in this case as between a company director and a senior member of management or between that senior member of management and the company by reason of the existence of an obligation to determine an alleged bonus entitlement of Mr Olson pursuant to a contract of employment. With respect, his Honour's reasoning to reach that conclusion was both thorough and compelling. 14 A person will be in a fiduciary relationship with another when and to the extent that person has undertaken to perform a function or assume a responsibility to another as would thereby reasonably entitle the other person to expect that he or she will act in that other's interest to the exclusion of his or her own interests. As the primary judge explained, the FASOC simply does not disclose a comprehensible, pleaded basis for such a relationship in the present context. 15 Mr Olson asserts in his written submissions that there was a "quasi-partnership" between the parties (whatever that means). This submission adds nothing and tends, with respect, to highlight the less than compelling nature of the argument advanced. There is no basis to consider that this aspect of the strike out is attended with sufficient doubt to warrant its reconsideration. 16 In any event, as his Honour noted, it is trite that the critical feature of fiduciary relationships is an undertaking to act in a particular way. When, such as here, that undertaking involving the relevant parties is contractual in nature, as Mason J noted in Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 at 97: …it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction. 17 The fact that the construction of a contract will inform the determination of the content of any alleged fiduciary obligation (if it exists) means that in the circumstances of this case, where a breach of contract case is being advanced, absent the apparent notion that relief might be sought directly against the alleged defaulting fiduciaries, it was never satisfactorily explained why any real prejudice would be suffered in refusing leave, even supposing (which I do not) the decision of the primary judge to strike out this aspect of the pleading was arguably wrong. If a bonus was required to be assessed in a particular way and this did not occur, it was not satisfactorily explained why relief could not be sought at law.

D.2 Accessorial Victimisation Case 18 There is no adequate basis identified upon which it is alleged that Mr Lipoff was involved in the alleged contravention so as to lead to a conclusion that he is an accessory. It is unnecessary for the purposes of the leave application to set out the well-known principles which establish the necessity to plead an accessorial liability case by setting out all material facts upon which the allegation is based. As the primary judge correctly identified, Mr Olson pleaded a contravention of s 1317AC(3) of the Act without the factual basis of this serious allegation being identified with any precision. Again, on an impressionistic basis, there is no basis to doubt the correctness of his Honour's decision to strike out this claim. 19 Moreover, as noted above, Mr Olson already has a case under s 1317AC(1) of the Act; it is not self-evident why any substantive injustice would arise from denying him leave in relation to this ground when this primary case is able to be advanced.

E.1 Unconscionable Conduct Case 20 Two different cases were pleaded alleging statutory unconscionable conduct, being conduct contrary to the norms contained in ss 20 and 21 of the ACL. It is convenient to deal with s 21 initially, as s 20 (by sub-s (2)), does not apply to conduct that is prohibited by s 21. Section 21(1) relevantly provides that "a person [which includes a corporation] must not, in trade or commerce, in connection with (a) the supply, or possible supply of … services to a person … engage in conduct that is, in all the circumstances, unconscionable". This directs attention to the definition of "services", contained in s 2(1) of the ACL, which expressly excludes "rights or benefits being the … performance of work under a contract of service". 21 The primary judge identified a number of problems with the pleading. The first was a finding that there was no case under s 21 of the ACL because the services provided by Mr Olson were in connexion with a contract of employment: at [19]. The second, and to my mind more important issue, which transcended the s 21 case and also applied to the s 20 case, was a detailed and, with respect, clearly correct critique of the pleading at [22]-[31]. The reasoning of the primary judge speaks for itself but, in short, the pleading of the claim miscarried because it was devoid of identification as to why particular conduct was said to be unconscionable and hence contrary to either statutory norm. This meant the relevant material facts called in aid by Mr Olson said to give rise to conduct which would be contrary to good conscience were obscured. 22 It follows that irrespective as to whether one formed the view that s 21 of the Act could arguably apply (because it regulated conduct connected to a provision of services between Hilco Australia and Hilco USA), the basal problem transcending the alternative cases was that the case, as pleaded, denied procedural fairness to the respondents by failing to articulate the case they were obliged to meet. 23 The respondents submit, correctly, that like fraud or breach of trust, unconscionable conduct is a serious allegation that needs to be properly particularised: FCR 16.42. For the reasons explained in detail by his Honour in the paragraphs I have identified in the preceding paragraph, the primary judge was amply justified in rejecting the pleading. 24 This brings me to a point of more substance raised by the Court during the course of oral address. On close analysis, although not articulated in the 11 grounds in the draft notice of appeal, a complaint could be made that the primary judge fell into error in refusing leave for Mr Olson to replead the Unconscionable Conduct Case. In Olson v Keefe (No 3) the orders made by the Court relevantly were that: 1. The applicant be refused leave to file a further amended statement of claim in the draft form provided to the Court on 25 June 2018. 2. The applicant pay the costs of the first, third and fourth respondents as agreed or assessed. 25 In refusing leave to replead the Unconscionable Conduct Case, his Honour said at [32]: Even if a proper case of unconscionability were able to be pleaded, for which there must be some real doubt given the limited scope of what has been relied upon thus far, two opportunities to address this have already been had. A third should not now be countenanced in the particular circumstances of this case. A claim of unconscionability by Mr Olson cannot now be allowed to proceed. It follows that leave cannot be granted to plead a claim under s 20, the basis for a claim under s 21 already having been denied by reason of the definition of "services" in s 2(1) of the ACL. As this is Mr Olson's fourth attempt at rectifying his pleading, I do not consider that this topic should be revisited by any further attempt at amending the pleadings in relation to the topic of unconscionability. 26 As I indicated during the course of argument, an appeal is against orders and not reasons. It necessitates the correction of error, and there was no arguable error in his Honour's orders. As Edelman J noted in Caason Investments Pty Ltd v Cao [2015] FCAFC 94; (2015) 236 FCR 322 at 334 [116] (in dissent, but not relevantly as to this issue): Apart from instances in which further evidence is admitted, or where there is a change in the law, a common law appeal by way of rehearing has required demonstration of error since 31 Edw III c 12: Blackstone W, Commentaries on the Laws of England (University of Chicago Press, 1979) Vol 3, p 46. Since there had been no change in the law or further evidence in this case then, as Allsop J said in Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424, 435 [22], …it is plain from what the High Court has said in CDJ v VAJ [[1998] HCA 76; (1998) 197 CLR 172] at 180 [111]; in Allesch v Maunz [[2000] HCA 40; (2000) 203 CLR 172] at 180 [22]; in Coal & Allied Operations v Australian Industrial Relations Commission [[2000] HCA 47; (2000) 203 CLR 194] at 203-204 [14] and in Crampton v R [[2000] HCA 60;] 206 CLR 161 at 213 [147]; 176 ALR 369 at 405 [147] (citing Attorney General v Sillem (1864) 10 HLC 704 at 724 per Lord Westbury LC and Victorian Stevedoring & General Contracting Co Pty Ltd v Dignan [[1931] HCA 34;] (1931) 46 CLR 73 at 109 per Dixon J) that the task of a court on an appeal by way of rehearing is the correction of error. 27 Of course, I recognise that my conclusion that there is no arguable ground of appeal because his Honour made no arguable error in his orders, does not address the substance of any point as to repleading. But for leave to be granted, there needs to be a basis for seeking to impugn his Honour's practice and procedure decision to refuse further leave to replead any unconscionability case. No ground of appeal specifically directed to a refusal to make an order allowing repleading of this aspect of the case, which constituted an error in the exercise of discretion in accordance with the principles explained in House v King (1936) 55 CLR 499, was articulated and developed. Irrespective as to whether any point as to the applicability of s 21 of the ACL can be made, the Unconscionable Conduct Case was maladroitly pleaded (under either section of the ACL) after a number of attempts. 28 Sir Frederick Jordan's seminal warning in In re the Will of F. B. Gilbert (Deceased) (1946) 46 SR (NSW) 318 regarding the need for a tight rein to be kept on the interference with orders of judges at first instance, in the exercise of discretion on a point of practice and procedure, would be highly relevant in the event of arguable error. Here, however, the application fails at an anterior stage. I do not consider that there is any such arguable error. In particular, the allegation of "pedantry" (ground 6) is misconceived. The primary judge, with respect, was correct to observe that: (a) it is not enough to plead a set of facts and a bare conclusion that, in all the circumstances, what has taken place is unconscionable; and (b) the pleading did not rise much higher than a bare narrative and conclusory allegation.

E.2 Implied Term Case 29 Two different implied terms were advanced. Again, it is convenient to deal with each of them shortly and in turn.

Obligation to comply with the Act 30 Mr Olson's written submissions raise no error of law in challenging the primary judge's finding as to the absence of any articulated basis for such an implied term. Mr Olson merely re-states his reliance on the principle of necessity, but Mr Olson needs to articulate an error in the approach of his Honour and further explain why it could be thought necessary for such a term to be implied in the contract. 31 In any event, no prejudice is identifiable as Mr Olson does not readily disclose any remedy sought in relation to the alleged breach of this implied term and hence it adds nothing to Mr Olson's substantive case. In oral submissions, the overarching concern of Mr Olson was articulated as a fear that if this case was struck out, certain unspecified evidence would not be required to be led by the respondents and Mr Olson would be shut out from adducing evidence relevant to a claim in contract. It seems to me, that given the breadth of the relevant circumstances to which the Court is required to have regard in a misleading and deceptive conduct case, contextual pre-contractual objective evidence (for want of a better description) would be relevant. Moreover, to the extent some reference was being made to evidence of subjective matters or post-contractual conduct, such material could never be relevant to any principled analysis as to whether there should be an implication of the terms as alleged. It is difficult to engage with an argument expressed at such a high level of generality, but I am not satisfied the point made has any substance. For completeness, I should add that a similar point was made as to evidence in relation to the Unconscionable Conduct Case I have already dealt with above. But again, despite efforts to seek particularisation of the precise evidence that would be "shut out" if leave was not granted and why it would not be able to be adduced if the balance of the matter went to hearing, such particularisation did not occur, and articulation of specific prejudice was lacking.

Fidelity to the bargain 32 Mr Olson developed no reason as to why the primary judge erred by striking out the "fidelity to the bargain" implied term at [42]. As I raised during argument, I suspect that what the pleader was driving at, was the notion that the parties had a duty to co-operate and agreed, by implication, to do all such things as are necessary to enable the other to have the benefit of the agreement and, as a corollary to this obligation, each was implicitly obliged to refrain from doing anything that would deprive the other of the benefit of the contract. Put in an orthodox way, this is an incident of the underlying principle that contracting parties must take all reasonably necessary steps to contribute to the realisation of the contractual bargain: Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607-608 per Mason J; Park v Brothers [2005] HCA 73; (2005) 80 ALJR 317 at 325 [38]; Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126 at 142 [36] per Gleeson CJ, Gummow, Kirby and Hayne JJ. Of course, in many cases "[t]he difficulty lies in giving content to that obligation": Council of the City of Sydney v Goldspar Australia Pty Ltd [2006] FCA 472; (2006) 230 ALR 437 at 497 [162] per Gyles J; Avenia v Railway & Transport Health Fund Ltd [2017] FCA 859; (2017) 272 IR 151 at 189 [145] per Lee J. 33 There is no substantive injustice in denying leave, as Mr Olson is not shut out from seeking his Honour's leave to articulate such an implied term correctly (to the extent that it adds anything to the case already pleaded): at [43].

F Conclusion 34 To the extent the draft grounds of appeal were articulated in submissions, they are dealt with above. For completeness, to the extent that they were not developed in submissions, an impressionistic review of them does not change my conclusion that Mr Olson has failed to demonstrate, on either the 2017 application or the 2018 application, that: (a) in all the circumstances, the decisions are attended with sufficient doubt to warrant their reconsideration on appeal; and (b) supposing the decision to be wrong, substantial injustice would result if leave were refused: Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 at 398-399. Mr Olson can continue to run his primary case and, if he wishes to replead aspects of his case which are open to him to run (such as an orthodox Secured Income implied term case), he can bring any such application for leave, which can then be dealt with by the docket judge. As to the 2018 application in particular, to allow further argument to occur on appeal in relation to the refusal of leave to advance a self-evidently defective pleading would not promote the just resolution of this dispute according to law, and as quickly, inexpensively and efficiently as possible. 35 The appropriate order is that both the 2017 application and the 2018 application be dismissed. There is no reason why costs should not follow the event. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee.

SCHEDULE OF PARTIES NSD 27 of 2019

NSD 29 of 2019 Respondents Fourth Respondent: HILCO MERCHANT AUSTRALIA PTY LTD ACN 150 215 875

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