1 HIS HONOUR: The plaintiff has, by notice of motion filed on 31 August 2000, moved to prevent the third and fourth defendants from taking any steps in proceedings which they have commenced in the Los Angeles County Superior Court (the "American proceedings"), and to restrain them from taking any action in these NSW proceedings unless they stay activity in the American proceedings.
2 There was a previous motion filed which sought merely to restrain the American proceedings. However, this would beg the real question as, if the third and fourth defendants are not subject to this Court's jurisdiction in the entire suit, they are also not subject to the Court's order on that motion. The motion was then reframed to take its present form.
3 I heard this motion on 6 September 2000 but, because of its unusual nature, considered that it would be appropriate to consider the submissions of counsel for a day or two. This I have done and now give my reasons for dismissing the motion with costs.
4 The background to the motion is to be found in the amended statement of claim and in the court file.
5 The amended statement of claim basically pleads that the plaintiff is a NSW corporation. The first defendant (H) is an Australian who has resided for some years in the USA. The second defendant (HL) is a NSW corporation. The third defendant (N) is a Californian resident and the fourth defendant (MN) is a Californian corporation. The fifth defendant (S) is a NSW company.
6 The amended statement of claim notes that the plaintiff was a joint venture company formed to produce films in Australia with Australian finance supported by distribution guarantees of US based distribution companies. H was initially a director of the plaintiff.
7 The venture got off the ground and S agreed to provide finance.
8 In 1988, N proffered a proposed agreement between the plaintiff and Orion Motion Pictures Corporation (Orion) and advised the plaintiff to execute it, which the plaintiff did.
9 H then resigned as a director of the plaintiff and he and N, with S providing finance, then took the corporate opportunity with Orion for themselves.
10 In 1990/1, MN, H and N sued S in California for breach of contract and obtained a large monetary settlement.
11 The plaintiff says that H derived his share of the settlement moneys by breaching his fiduciary duties to the plaintiff and that N and MN knew of H's breach, participated in it and made profits. The plaintiff seeks an account of the profits made or equitable compensation.
12 N and MN have not appeared in these proceedings. They have, however, taken advantage of the procedure set out in Part 10 rule 6A of the Supreme Court Rules and filed a notice of motion to set aside the service of the statement of claim or to obtain an order that the proceedings were never properly served on them or to obtain a declaration that this Court has no jurisdiction. The purported service was effected in the USA. That motion (which I will call "the earlier motion") was filed on 12 November 1998, amended on 19 April 2000 and is likely to be listed before a Master in December 2000. I offered to hear it and the part of the present motion which seeks an anti suit injunction next month, but the plaintiff would not consent to that course. The plaintiff also would not consent to the anti suit injunction part of the present motion being referred to a Master for determination.
13 A court of equity basically exercises only in personam jurisdiction. That is, it makes orders against people who are present in the jurisdiction or who have submitted to the jurisdiction. The in personam jurisdiction may, in proper cases, be exercised where the defendant has property in the jurisdiction over which the Court can enforce its order. In recent times, this jurisdiction has been further developed by the presumption that a defendant is considered to have property within the jurisdiction unless the evidence shows otherwise. (This is the "Peter Pan" principle from the case where it was expounded, Hospital for Sick Children v Walt Disney Productions Inc [1968] Ch 52, 71, a case over the copyright of the literary work "Peter Pan").
14 There are cases where equity has expanded beyond an in personam jurisdiction. These are cases where there is what has become known as "equitable property" involved. A beneficiary's interest under a trust has, over the course of time, transmogrified from being a personal right against the trustee into being a right of property with the beneficiary in a bare trust being said to have an equitable fee simple.
15 Just where equitable jurisdiction in personam stops and jurisdiction over equitable property commences is unclear. There is no problem over land subject to a trust. However, just what is the status when the alleged equitable property is a contractual right or the Court has a case where it is asked to impose a constructive trust over property is unclear.
16 The origin of equity's jurisdiction must also be borne in mind. The Lord Chancellor, with responsibility for the immortal souls of the subjects of the English King, made orders that such subjects behave in accordance with what all right thinking people knew (scio) with (con) God what was right. There was no concern with the souls of mere foreigners.
17 Thus equity is very much a local field of law.
18 The shrinking globe and the fact that international fraud and fraudsters flourish has meant that some of these concepts may be showing that their use by date has passed. Nonetheless, they still govern the approach of this Court.
19 In The Prince's case, National Commercial Bank v Wimborne (1979) 11 NSWLR 156, Holland J had to deal with a case where a foreign bank sued a NSW resident in NSW. The defendant sought to file a cross claim against the bank. The bank objected to the Court's jurisdiction to hear the cross-claim. Holland J struck out the cross claim. His Honour, at page 165, made it clear that unless the bank could be said to have a presence in NSW, the Court had no jurisdiction to entertain the cross-claim.
20 In an earlier round of The Prince's case (1978) 5 BPR 11,958, 11,982 Holland J said:
"The Equity court has long taken the view that because it is a court of conscience and acts in personam, it has jurisdiction over persons within and subject to its jurisdiction to require them to act in accordance with the principles of equity administered by the court wherever the subject matter and whether or not it is possible for the court to make orders in rem in the particular matter. In short, if the defendant is here, the equities arising from a transaction to which he is a party as ascertained by New South Wales law and the equitable remedies provided by that law will be applied to him.
"The Equity Court determines according to its own law whether an equity exists, its nature and the remedy available...".
21 The passage I have just set out was followed by McLelland J in United States Surgical Corp v Hospital Products International Pty Ltd [1982] 2 NSWLR 766, 797. The USSC case concerned Blackman who (as the judge found) was appointed a distributor for Australia of the plaintiff's products under an agreement whose proper law was New York or Connecticut. The plaintiff was an American corporation. Blackman, in Australia, breached the fiduciary duty that he owed the plaintiff. His Honour said at page 798:
"… since the rationale of the availability of relief in such cases is that the court acts in personam to regulate the defendant's conscience, it would seem sufficient that the defendant whilst resident within the forum was guilty of conduct which, by offending against those principles, gave rise to the occasion for such regulation …".
22 The fact of the proper law of the contract is irrelevant. Contractual obligations and fiduciary obligations have different conceptual origins (USSC case at 799). The point was also dealt with by Lord Cottenham LC in Ex Parte Pollard; Re Courtney (1840) Montagu & Chitty Bankruptcy Reports 239, 250-1; 4 Deacon's Bankruptcy Reports 40, 41 where he said that:
"the courts of this country ... in administering equities between parties who reside here, act upon their own rules, and are not influenced by any consideration of what the effect of such contracts might be in the country where the lands are situate, or of the manner in which the courts of such countries might deal with such equities".
23 It is also irrelevant that property may be outside the jurisdiction so long as the defendant is within the jurisdiction. Thus Mareva orders may be made in respect of foreign property: National Australia Bank Ltd v Dessau [1988] VR 521, 522.
24 In the present case there is even more of a problem for the plaintiff than in the USSC case. Here, the alleged unconscionable conduct physically seems to have occurred in the USA. There is a connection with NSW in that the plaintiff is a NSW company, and H and HL are within the jurisdiction. However, N and MN are quite outside the jurisdiction and their physical acts took place outside the jurisdiction.
25 I should note that in cases where a company in liquidation is involved, English courts have said that they have jurisdiction over a claim both by and against the liquidator even when the subject matter of the dispute and the opposing party is outside England, at least in special cases. The rationale is that it is often appropriate, where an English winding up is concerned, to deal with priorities in England even though that involves foreign elements; see Barclays Bank plc v Homan & Maxwell Communications Corporation plc [1993] BCLC 680 and Mitchell v Carter [1997] 1 BCLC 673.
26 I mention all this because I wonder whether the amended statement of claim is sufficiently well expressed to show a sufficient nexus with NSW of the fiduciary duty. It also seems to have been assumed, I wonder whether correctly, that in the earlier motion, the Master will apply the "clearly inappropriate forum" test that applies to actions in contract and tort. There is also the problem that it is difficult to fit this case into any of the categories in Part 10 of the Rules.
27 However, my task is merely to see if N and MN should be prevented from bringing the earlier motion on for hearing.
28 The plaintiff says that it would be an abuse of process to allow N and MN to delay so long in bringing that motion on for hearing just when it was about to get a date for hearing to commence the American proceedings.
29 The plaintiff also relies on the principle that a person in contempt of court should not be heard whilst the contempt is current. It submits that the abuse of process in the present case provides an analagous case where N and MN should not be heard.
30 There is no doubt that such a rule exists and that it operates even when there is a procedural contempt of court. The rule is discussed by the English Court of Appeal in Hadkinson v Hadkinson [1952] P 285 and by our Court of Appeal in Permewan Wright Consolidated Pty Ltd v Attorney-General (1978) 35 NSWLR 365, where Hutley JA traces the history of this "fundamental rule". However, its basis is that the Court's orders must be complied with. Although there is an element of abuse of process when a person in contempt of an order of the court brings his or her own application, not all abuses of process will involve treating the court with disdain. In any event, the contempt rule never prevented a party from bringing a motion to discharge an order on the ground of irregularity; see Wilson v Metcalfe noted in 1 Coop T Cott 213; 47 ER 824. A motion to determine that there is no jurisdiction would seem to me an a fortiori case.
31 Further, I believe that the trend of thinking is actually flowing against the contempt rule rather than in the direction of its extension.
32 Mr Wales SC, who appeared with Mr Ashhurst for N and MN, put that in any event, there has been no abuse of process in any real sense of that term. There has not been gross delay in dealing with the earlier motion. Further, the commencement of the American proceedings was a step lawfully open to N and MN and did not impinge on the rights of the plaintiff in the NSW proceedings in any way.
33 Mr Brender for the plaintiff, put that the Court has power, by appropriate order, to restrain any step taken by a party to proceedings, if that step were to cause injustice. He referred to Tringali v Stewardson Stubbs & Collett Pty Ltd (1966) 66 SR (NSW) 335, 344; Hamilton v Oades (1988) 166 CLR 486, 502 and Rajski v Bainton (1990) 22 NSWLR 125, 128. That general proposition may be accepted. As the lastmentioned case shows, any action taken for a collateral purpose or to delay proceedings may be an abuse of process for the purposes of the proposition; see eg Packer v Meagher [1984] 3 NSWLR 486.
34 In favour of the plaintiff's stance, Mr Brender submitted that it would appear that the American proceedings are just a complete waste of time and money unless they have a purpose of frustrating the NSW proceedings. It is generally of no utility to obtain a declaration by a court to which the defendant is not subject by the rules of the place of its domicile, that the defendant has no right of action in that court. It is worse than useless when the plaintiff says that its claim is for breach of fiduciary duty according to NSW law and does not seek to say that according to the law of California it has any claim against N or MN. There is force in these submissions.
35 Mr Wales SC's riposte to these submissions is that if the American proceedings are truly useless, then they can be ignored, or, if they are not ignored, they will be dismissed and will not prejudice the plaintiff. This is true to an extent, but it must be taken into account that the plaintiff is in liquidation and may have been starved of funds because of the equitable fraud to which N and MN were privy.
36 It was put by Mr Wales SC that a step taken outside the NSW proceedings and which could not, except perhaps forensically or with respect to a commercial settlement, impinge on the NSW proceedings cannot be an abuse of the NSW process. He further submitted that the Court is not to be concerned with whether there is a possible abuse of process in America or even if there is (which was denied) a tactical move dehors the proceedings by N and MN.
37 On reflection, these submissions are probably correct. However, it is not necessary to reach a final view on this matter.
38 There is a vital distinction between a judge having a power and the exercise of his or her discretion to use that power. The power to strike out a legitimate application without hearing it on the merits is one to be exercised with caution. It must be remembered that "abuse of process" is really shorthand for describing a step which is oppressive and vexatious, that is, "seriously and unfairly burdensome, prejudicial or damaging" and "productive of serious and unjustified trouble and harassment", per Deane J in Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197, 247.
39 As Mr Wales SC submits, there is a right to challenge the jurisdiction of this Court. Further, the authorities show that as a matter of comity, courts should not intervene in foreign disputes: Mitchell v Carter (supra) at p 687.
40 In my view, the proper course is to let the earlier motion proceed. The abuse of process is marginal and there is a strong right for a person not subject to this Court's jurisdiction who is sought to be brought within it to be given the opportunity to demonstrate that service should be set aside.
41 Thus, I dismiss the motion of 31 August 2000 brought by the plaintiff with costs.
42 It follows that the parties may now approach a Master for a date for hearing the earlier motion. It may be, however, that they might now wish to wait until after the Olympic Vacation to digest these reasons and consider whether either the pleadings or the motion need further thought.
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