Plaintiff v Defendants

(3) Proceeding No 1363 of 2011 be stayed until further order of the Court.

2 I must state my reasons for the orders which I have proposed. Proceeding No 5515 of 2008 ('the original proceeding') arises out of a breakdown of the business relationship between two brothers, Robert and Erwin Deutsch. That relationship embraced a series of businesses conducted through the mechanism of a series of companies which are in turn the trustees of a series of discretionary trusts. The families of each of the brothers are included in the objects of each of the trusts. The companies are jointly controlled by the brothers as shareholders and directors.

3 In the original proceeding, the plaintiff, Robert, and members of his family who are beneficiaries of the trusts allege, inter alia:

(a) breaches of fiduciary duties by his brother, Erwin;

(c) that new trustees should be appointed in respect of each of the relevant trusts.

4 The original proceeding is fixed for hearing this Thursday.

5 Erwin's wife, Tziporah, together with her children and her grandchildren ('the new parties'), have now issued Proceeding No 1363 of 2011 ('the new proceeding'), effectively on the eve of the trial. The new proceeding is brought on the basis of rights allegedly held by the new parties as beneficiaries of the relevant discretionary trusts and also seeks by way of primary relief the appointment of new trustees. Although there are some discrepancies in the initiating documentation in terms of the interlocutory relief claimed by the new parties, it has become clear that the primary relief sought is an order that the two proceedings be consolidated.

6 Yesterday, Associate Justice Daly refused to make such an order, noting that the matters raised on behalf of the new parties could have been raised by way of defence or strike-out application in the original proceeding, and that the new parties are not at arm's length from the defendants in the original proceeding.

7 I accept these conclusions as to the underlying character of the new proceeding as being correct. I note that the affidavit of Tziporah Deutsch recounts information received by her from her husband, Erwin, and is verified by a further affidavit sworn by him. I also note the matters set out in the affidavit of Mr Pinto which demonstrate an active involvement by Tziporah in the conduct of the defence of the original proceeding.

8 Nevertheless, I have come to the conclusion that the new parties should be added as defendants to the existing proceeding for the following reasons. Firstly, Mr Korman, who appears as counsel for the new parties, has indicated their participation in any joint hearing with the original proceeding would be limited to submissions concerning the rights of the plaintiffs to the relief sought in that proceeding and to addressing a case supporting an order for the appointment of a new independent trustee in respect of each discretionary trust. Secondly, the new parties do not seek to delay the trial of the original proceeding. Mr Korman has expressly disclaimed any intention to seek adjournment of such trial. Thirdly, the evidentiary matrix relating to the plaintiff's rights in the original proceeding will not, insofar as I can discern, be affected by the joinder of the new parties and I am not satisfied the plaintiffs in the original proceeding will be prejudiced in the presentation of their case by the proposed consolidation. Fourthly, it is difficult to refuse the beneficiaries a right of hearing in circumstances where they include infants and there is a real possibility that their interests are not identical to those of their parents, and in particular to the interests of their father and grandfather, Erwin.

9 Dr Wilson and Mr Matters, who appear for the plaintiffs in the original proceeding, oppose any order for consolidation. First, they say that the new parties have been guilty of inexcusable delay. In explanation of the delay, the new parties contend that they have only instituted the new proceeding after Erwin indicated he would not be legally represented at the hearing of the original proceeding. I have some doubts as to the true genesis of the new proceeding, but I do not find the question of delay to be decisive. It seems to me that some explanation has been offered for it and the question of joinder is to be resolved by balancing the other considerations which, on the one hand, favour consolidation and on the other go against it.

10 The next factor upon which counsel for the plaintiffs in the original proceeding rely is the contention that the new proceeding is, in effect, an abuse of process. I substantially agree. The proper course is, however, for the matters attempted to be raised by the new proceeding to be resolved by the original proceeding.

11 Next, it is said that any consolidation will prejudice the plaintiffs in the original proceeding because it may derail the trial and/or render it unduly complex. I do not accept that these are necessary consequences of consolidation in the circumstances I have outlined.

12 For the above reasons I consider that the balance of convenience and the underlying equity of the parties' positions favours the consolidation of the new proceeding with the original proceeding. Accordingly, I propose to make the orders I have foreshadowed. I will however record under 'Other Matters' that counsel for the new parties stated: (a) that they will not seek an adjournment of the trial of the original proceeding upon joinder as parties to that proceeding; and (b) that upon such trial, the estimate of the duration of the new parties' case is one half day.

13 In this matter, counsel for the new parties seek an order for costs of the application both to Associate Justice Daly and of the appeal which I have determined and, in the alternative, seek orders that those costs be reserved.

14 Counsel for the plaintiffs in the original proceeding seek costs on an indemnity basis on the following grounds: first, that the plaintiffs in the new proceeding have, in effect, sought and obtained the indulgence of the Court and have not applied in an orderly and proper manner to bring their case before the Court. Secondly, that the application which has been made is the sort of last minute application which the case management principles adopted in the Civil Procedure Act 2010 and in the case of Aon Risk Services Australia Ltd v ANU[1] seek to stamp out. Thirdly, that the presentation of the case for the plaintiffs in the new proceeding has recognised that it has been put on shifting ground. Fourthly, that there has been a departure from the terms of the originating motion and summons in the case put on behalf of the plaintiffs in the new proceeding. Fifthly, that the plaintiffs in the original proceeding have been distracted unfairly from preparation for the trial, fixed this Thursday.

15 I do not accept that the matters raised comprise exceptional circumstances evidencing conduct so unreasonable that costs should be awarded on an indemnity basis, but I do accept that three of the matters identified do justify an award of costs against the plaintiffs in the new proceeding. They are, essentially, that it seems to me the new parties are obtaining an indulgence from the Court in respect of matters that should have been agitated in the original proceeding, and so much is apparent from the terms of the ruling I have given as to the substantive application. Secondly, there has been a departure from the terms of the originating motion and summons in the matter. Thirdly, and in a sense connectedly with the point I have just mentioned, the application in respect of the new proceeding for interlocutory relief has been put on somewhat shifting bases.

16 Ultimately, I have acceded to the substance of the application subject to a series of concessions that were made to me this afternoon and on the basis of the arguments I have identified in my ruling, but it seems to me that the matter has involved a degree of last minute confusion and complication which is essentially the fault of the plaintiffs in the new proceeding coming to Court at the late stage which they have. Accordingly, I do propose to order that the plaintiffs in the new proceeding pay the non-parties' costs of the appeal, but I do not propose to order that they do so on an indemnity basis.

17 I will set aside orders 1 and 2 of the orders of Associate Justice Daly.

[1] [2009] HCA 27.