Sent, Edward Christiaan & Anor v Jet Corporation of Australia Petres Pty Ltd & Ors v Jet Corporation of Australia Collier & Anor v Jet Corporation of Australia [1984] FCA 185

jurisd ?ckion te exercise the discretion contained in 5.533

Companies Act 1981 (Vic.}) - Factors taken into account

veyaht to be attributed te certain factors - the issue of the

respondent company suing for benefit of another within the context of both 0.28 £.3(1)(6) and 5.5323 of the Companies Act 1981 (Vaic.).

Appeal - principles to be applied in an appeal from an exercise of a discretion by the primary qudjqge ona matter ot

seer meres comers were a Qe ca ee: ate oe was e Petar - 5

EDWARD CHRISTIAAN SENT & ANOR v. JET CORPORATION OF AUSTPALIA

PETFES FY. LTD. & ORS. v. JET CORPOPATION OF AUSTRALTA PTY,

JOHN BARRY COLLIER & ANOR v. JET CORPORATION OF AUSTRALIA PTY.

te eed an ohne net athe hae Ri ou no niteltee aturre citemehe nar

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| J IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY

ON APPEAL FROM THE HON. MR. JUSTICE NORTHROP IN PROCEEDING NO. VG 109 OF 1993

Between: PETRES PTY. LTD.. DIPSON PTY. LTD. , WESTWIND JET CORPOVATION PTY. LTD... TREVOR BURTON HUTTLEY, JON DEaN WILSON, SCAPELA IRA NOMINEES PTY. LTD., and ROVOIL PTY. LTD.

Between: JOHN BARRY COLLIER and LINDSAY QUENTIN HOGG

IIR eT ene tenn en Senn ent ene Ire eet eet we 8 ee man ene re te eee

Judges Making Order: Smithers, Sweeney and McGregor dd.

Date of Order: 6 July 1984 Where Made: Melbourne. ORDER

The appeals of the appellant parties are allowed with

Leave 15 reserved to the appellant parties to apply to

The determination of the amount and nature of such security is referred to the Judge from whose decision

IT np pe et te ee es ere se er ee cee ee ee ee ee ee

ON_APPEAL FROM THE HON. MR. JUSTICE NORTHROP IN PROCEEDING NO. VG 109 OF 1983

Between: PETRES PTY. LTD.. DIPSON PTY. LTD... WESTWIND JET COPPORATION PIY. LTD... TREVOR BURTON HUTTLEY, JON DEAN WILSON, SCAPELA IRA NOMINEES PTY. LTD... and POVOIL PTY. LTD.

Between: JOHN BARRY COLLIER and LINDSAY QUENTIN HOGG

6 duly 1984 REASONS FOR JURGMENT Smithers J: Before this court are appeals

• Landsay Quentin Hogg (originally the 7th respondent and

capacity as trustee of the Schutt Unit Trust) originally

capacity as Trustee of the Dipson Settlement) originally

• Trevor Burton Huttley (originally the 4th respondent and

• Jon Dean Wilson (originally the Sth respondent and

• Scapela Ira Nominees Fty. Ltd. (eriginally the 10th

respondent and hereinafter referred to as Scapela):

• Edward Christiaan Sent (originally the &th respondent

• Brian For shaw {originally the 9th respondsnr and hereinafter referred to as Forshaw); ~ Rovoil Pty. Ltd. (originally the Jlth respondent and

The appeals are from orders made on three notices of motion. The first of these was a notice given by Collier and

Hogg. The relief sought 1n that motion included orders:-

"1. That the proceeding insofar as it lies against the Third and Fourthnamed Fourth Respondents Cin other words the 6th and 7th respondents] be stayed or dismissed.

2. Alternatively that the Aprlicants provide security for the costs of the Third and Fourthnamed Fourth Respondents in such form

or amount as this Honourable Court may direct and that until such security 15s provided the proceeding insofar as it lies against the Third or Fourthnamed Fourth Resgonaents be stayed."

The second motion was that of Petres, Dipson, Westwind,

Huttley, Wilson, Scapela, and Rovoil. Relisf sought in

THAT the Applicants' claims against them in these proceedings be stayed or dismissed generally pursuant to Order 20 Rule 2(1) of the Federal Court Rules.

zecurlty for their costs of these proceedings and in default oF so doing that the claims aqainst them in these

Applicants file and serve Further and Better Particulars of the Statement of Claim, in accordance with the Request annexed hereto or as otherwise ordered by this Honourable Court, before the filing of Defences by them."

That the Application made by the Applicant in paragraph 1 of its Application herein be dismissed as being an abuse of the process of the Court.

That the Applicants' Statement of Claim herein be struck out

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(b) as having a tendency to cause prejudice, embarrassment or delay in the proceedings herein.

4. That the Application of the second and third named Applicants be, so far as it relates to them the said Edward Christiaan Sent and the said Brian Forshaw, dismissed on the basis that

(a) there ig no reasonable cause of action disclosed against them

(b) the said Application is frivolous or vexatious as against them

(c)} the said Application is an abuse of 'the proces of the Court as against then.

o. That the Applicants and each of them be required to deliver further and better particulars of their Statement of Claim against the said Fdward Christiaan Sent and the said Brian Forshaw before they deliver their defences herein.

The issues between the parties arise out of commercial transactions entered anto in 1981 and 1982 by various of the parties to this action. According to the somewhat

(a) Sent and Forshaw in May 1981 sold to Wilson their interests, called the vendor's ainterests, in Petres, Westwind and Dipson and in the applicants Electrum Acceptance Pty. ULtd., Electrum Finance Pty. Ltd., and ina certain unit trust known as the Schutt Unit Trust, for the sum of $4,800,000.

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20 May 1981, an instalment of $600,000 on 10 September 1981 and the balance, namely $3,800,000

By an agreenent dated 10 September 1981 made pursuant to the first Wilson agreement between Petres and Westwind of the first part, certain persons identified in a schedule as vendors of the second part, Sent and Forshaw of the third part, Dipson of the fourth part and Wilson of the fifth part, Sent and Yorshaw agreed to transfer to Dipson all the interests in the above mentioned "vendors interests" of themselves and of the vendors identified in the schedule in the above mentioned vendors' interests for $4,800,000 payable as to $3,000,000 by Petres and Westwind, and as to $1,800,000 by Dipson by an initial deposit of $400,000 on 20 May 1981, an instalment ef $600,000 on 20 September 1981 and the balance by 20 July 1983. (The second Wilson agreement)

By a sale of business agreement called the Petres sales agreement dated 20 October 1981 and a supplemental sales agreement in writing dated 22 October 1981 made between Petres as vendor and Jet Corporation of Australia Pty. Ltd. (originally the

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was aware that the sales agreement representations were untrue and notwith- standing such knowledge caused or permitted Jet Corporation to enter into the Petres sales agreement, the Westwind sales agreement and the Dipson sales agreement;

was aware that the sales agreement representations and the pre-settlement representations were untrue and notwith- standing such knowledge caused or permitted Jet Corporation to complete the said agreements; and

(i) aided and abetted, counselled and procured Petres, Westwind and Dipson to engage in the conduct complained of by Jet Corporation;

(ii) was dzrectly or indirectly knowingly concerned in and/or party to that conduct;

that he made the pre-settlement represent- ations to Jet Corporation by causing the Petres, Westwind and Dipson sales agreements to be carried out and completed by Jet Corporation in accordance with the terms of

the agreements without alteration and by causing a Touche Ross certificate dated 21

ST RS Sgt pray Semen Reags Se eres + - o ed a meee 3 = wo es ee ee

(1i) that at all material times as a Director of wet Corporation he was aware that the pre-settlement representations were untrue and notwithstanding such knowledge caused or permitted Jet Corporation to complete the Petres, Westwind and Dipson sales agreements and thereby:-

(1) he aided, abetted, counselled or procured Petres, Westwind and Dipson to engage in the conduct complained or hy Jet Corporation;

(iil) was directly or indirectly knowzngly concerned in and/or party to that conduct.

(p) It is alleged that at the time when Petres, Westwind and

that Petres, Westwind and Dipson proposed to enter into the sales agreements;

that the sales agreement representations would be made and 'that they were untrue; and

that Wilson, Petres, Westwind and Dipson were unable to pay the purchase price or their respective shares of the purchase

It is also alleged that, when Petres Westwind and Dipson

made the sales agreements Sent and Forshaw were aware:

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that the sales agreements, representations and the pre-settlement representations had

that Petres, Westwind, Dipson and Wilson were unable to pay the purchase price oc

(1) aided, abetted, counselled or procured Petres, Westwind and Dipson to engage in the conduct complained of by Jet

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on 21 December 1981 at the offices of Mallesons, solicitors for Citicorp at the time of the settlement of the Petres sales agreement and the Dipson sales agreement Sent and Forshaw accepted payments pursuant to

as against Scapela and Rovoil it is alleged that they were knowingly concerned in or party to the misleading and deceptive conduct alleged against Petres, Westwind

Scapela agreenent and the Rovoil agreement respectively;

(ii) that Scapela and Rovoil were entitled to and derived valuable benefits pursuant to those agreements and the continued operation thereof;

(iii) that the continued operation of the Scapela and Rovoil agreements were secured by the Petres sales agreement;

(iv) that it was a term of the Petres sales agreement that Petres would transfer and Jet Corporation would assume the obligations of Petres pursuant to two

(v) that Scapela is and was at all material times a company incorporated in the State of Victoria in accordance with the Companies Act in force, and was a trading corporation and is the affective control of

(vi) that Rovoi1l is and was at all material times a company incorporated in the State of Victoria in accordance with the

Included in the Statement of Claim are claims for relief on the ground that Huttley, Wilson, Collier and Hogg committed breaches of their duties under the general law to Jet Corporation as directors thereof in causing or permitting Jet Corporation to enter and then complete the Petres, Westwind and Dipson sales

adjudicate on such claims arises, if at all, under s.22

of the Federal Court of Australia Act 1976 on the basis

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motions before this Court as to the manner of pleading

It is convenient to deal first with Sent and Forshaw. On their behalr Mr. Archibald, relying on o.il

rules), submitted that the Court should dismiss the action or grant a stay thereof on the ground that the claims made against Sent and Forshaw are clearly unsustainable. He pointed out that so far as relief under the Act is sought in the application the only claims against Sent and Forshaw are for damages on the ground that they were "involved" within the meaning of s.75B of the Act in conduct that was engaged in by Petres, Westwind and Daipson in contravention of s.52 of the Act. He contended that the matters pleaded provided no basis upon which such "involvement" could be supported. He submitted that what was pleaded did not disclose any conduct on the part of Sent or Forshaw which, within the meaning of s.75B of the Act, constituted aiding, abetting, counselling or procuring any of the contraventions of the Act by Petres, Westwind ana Dipson, or that they were in some way directly or indirectly concerned in or party to any of those contraventions. And it is clear that no allegation of

any positive act of collaberation or association with

However, Mr. Graham for Jet Corporation contended that, from the facts alleged, the inference might properly be drawn that Sent and Forshaw were persons "involved" in the contraventions. He said that the relevant contraventions were constituted by misrepresentations by Petres, Westwind and Dipson designed to induce Jet Corporation to purchase the relevant assets for the consideration stated in the relevant sales agreements. He pointed out that it was un the anterests of Sent and Forshaw that Petres, Westwind and Dipson should make a successful sale, and that otherwise they would be unable to meet their liabilities to Sent and Forshaw. He contended that if, as alleged in the Statement of Claim, Sent and Forshaw

knew that Petres, Westwind and Dipson, for the purpose

wf making such a sale, proposed to misrepresent to Jet Corporation the value of the assets and stood silently by while they did so, that conduct would constitute involvement in the contravention. But it 15 clear that to be involved in a contravention consisting of misleading and deceptive conduct it 1s necessary not only that the person concerned should know that a party proposed to engage in a contravention but he should in some positive way, be associated therewith. On the face of the pleadings there is nothing to suggest that the

sales by Sent and Forshaw to Petres, Westwind, Dipson

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and Wilson were not entered into perfectly bona fide as amatter of business, save that they knew that Petres, Westwind, Dipson and Wilson could not pay the sums due

by them unless they made a sale at a satisfactory price.

No doubt questions arise when 1t is seen that assets are sold toa purchaser who can only pay for them if he sells those assets at a satisfactory price. But where it does not appear that the vendor has any control over, or is in any way @ participant in, the negotiations for the resale of the assets or promoting the making of misleading statements by the purchase: to a subsequent potential purchaser, the mere fact that the vendor was aware of impending misconduct of the persons reselling Che asset does not raise a case of involvement in that misconduct.

According to the decision of the Full Court of the Federal Court in Yorke v. Lucas (1984) 49 ALR 672 a person is not "involved" in a contravention within the meaning of s.75B of the Act unless he assents to or concurs in the conduct which constitutes the contravention. What was in issue in that case was not whether a positive act had been committed by the alleged aider and abettor but whether he had knowledge of the

falsity of what he had said to the party who was misled.

statements would have constituted a sufficient positive

RE EER AP ore NIN NR re em an Rr en ee ee ee ee ee eee

act. Here the situation is different. The knowledge is alleged but. not the positive act. If it were alleged that Sent and Forshaw performed some act associating themselves with the misleading conduct in which they knew Petres, Westwind and Dipson intended to engage there would be both the knowledge and the particzpation in the misleading conduct. Involvement would be clear. As was said in Yorke v. Lucas (Supra) at p.681 adopting the decision of Pennycuick V.C. in Re Maidstone Buildings Provisions Ltd. £19713 1 WLR 1085 ths expression "party to" ain 232(1) of the Companies Act 1945 "must on its natucal meaning indicate no more than "participates in", "takes part in" or "concurs in". And that, it seems to me, involves some positive step of some nature. I do not think it can be said that someone is aparty to carrying on a_business if he takes no positive steps at all". But there is in det Corporation's pleading no hint of any positive step which might constitute participation on the part of Sent and Forshaw in the alleged misleading and deceptive conduct of Petres, Westwind and Dipson in connection with their sales to Jet Corporation. Even if it were correct to say that on the facts pleaded satisfaction might have been felt by Sent and Forshaw in the possibility that Petres, Westwind and Dipson might make a sale at a satisfactory price and so be enabled to pay

the purchase money due by them to Sent and Forshaw that

would not constitute a relevant positive act on the part

In the absence of some duty owed «by Sent and Forshaw to Jet Corporation, silence and inactivity on the part of Sent and Forshaw, notwithstanding all their knowledge, was non-significant. Similarly, for the purpose in hand, the acceptance by Sent and Forshaw from Petres, Westwind and Dipson of the purchase money due to

them by any of those companies with knowledge that the money paid was part of the proceeds of the sale of the assets to Jet Corporation in the circumstances described would not constitute a positive act of participation by Sent and Forshaw in the alleged misleading and deceptive conduct of Petres, Westwind and Dipson which had occurred in the negotiations for the various sales to Jet Corporation. These sales were in the control of Petres, Westwind and Dipson and the steps they took to achieve a sale satisfactory to them were determined by them. If Sent and Forshaw become aware that Petres, Westwind and Dipson intended to induce Jet Corporation to pay a high price by misrepresenting the value of the assets it was, strictly speaking and apart from matters of morality, none of their business. For all that appears, they were in no position to intervene.

incurring some liability. Of course, the sales on which

SO PE TR NR em RII ONIN AN ener peri ore genes appa eee ne eee wee re

Petres, Westwind and Dipson negotiated were sales ata Price much higher than was necessary to discharge their liability to Sent and Forshaw and to that extent their interests were different from those of Sent and Forshaw. There is nothing alleged which indicates that Sent and Forshaw were not mere onlookers of the alleged misleading and deceptive conduct of Petres, Westwind and

a statute may be cast in such terms as to imply a duty to foresee and prevent the act or thing that is the offence and that in such case any party, who could and should prevent the Act or thing, but omits to do so, is a party to and participates in the offence. In Yorke v. Lucas (supra) it was held that the terms of s.75B were not to be interpreted as imposing on the managers of a corporation a duty to take positive steps to prevent the corporation from engaging in misleading and deceptive

conduct where they have no knowledge of the essential facts necessary to constitute the contravention. It is not to be thought that it imposes such a duty on a party who has no legal relationship of any kind with the person who proposes to engage in misleading and deceptive conduct in relation to a third person. There is no suqgestion that there is disclosed in the

Statement of Claim a duty of some nature on Sent and

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Forshaw to have warned Jet Corporation of the alleged proposal of Petres, Westwind and Dipson to engage in the

misleading and deceptive conduct alleged against them.

It appears therefore that in relation to Sent and Forshaw the terms of the Statement of Claim do not comprehend every element reasonably necessary to constitute a cause of action under s.75B of the Act. It does not necessarily follow, however, that the application should be dismissed. The observations of

Commissioner for Railwavs (NSW) (1964) 112 CLR 125 at

"There 1s no need for me to discuss in any detail the various decisions, some of which

were given in cases in which the inherent jurisdiction of a court was invoked and

others in cases in which counterpart rules to Order 26, r.18, were the suggested source of authority to deal summarily with the claim in

question. It is sufficient for m2 to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action - if that be the ground on which the court 1s invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated.

Dizon J. (as he then was) sums up a number of authorites in Dey . Victorian Railways Commissioners (1949) 78 CLR 62 where he says: "A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court with or without an injury. The fact

@ that a transaction is intricate may not disentitle the court to examine a cause of action alleqed to grow out of ait for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once 1t appears that there is a real question to be determined whether of fact or law and that the rights of the pacties depend upon it, then it is not competent foc the court to dismiss the action as frivolous and vexatious andan abuse of

Mr. Graham for Jet Corporation seeks leave to amend the Statement of Claim. The defect in this Statement of Claim,

unless cured by amendment, would be fatal to it. But at this

aunterlocutory stage, before delivery of a defence, leave to

amend on terms would seem appropriate. Such leave should be Given with liberty to the appellant parties to apply to strike

out the amended Statement of Claim or for other relief as they

may be advised. *This was the course adopted by the Full Court un L. Grollo Darwin Management Pty. Ltd. v. Victor Plaster

submissions on behalf of Collier and Hogg that the Statement of Claim discloses no cause of action against his clients or

alternatively that it ought to be struck out as embarrassing.

His attack on the Statement of Claim took two paths. First he challenged the allegation that Collier and Hogg were involved

in the making of either the sales agreement representations or

the pre-settlement representations "by causing" the sales

agreements to be entered into and completed by Jet Corporation

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and "by causing" the certificate of Messrs Touche Ross & Co. to be prepared. He submitted that such statements did not

disclose any act of causing the events referred to ard were

According to the Statement of Claim both Collier and Hogg as Directors of Jet Corporation were aware that the representations (in Collier's case both the sales agreement and the pre-settlement representations, and in Hogo's case the pre-settlement representations) referred to above were untrue and notwithstanding such knowledge caused or permitted Jet Corporation to (in Collier's case) enter anto the Petres, Westwind and Dipson sales agreements when aware that the representations were untrue and (in both Collier's and Hocg's case) notwithstanding such knowledge they caused or permitted

It is then alleged that "thereby" Collier and Hogg aided or abetted counselled and procured Petres, Westwind and Dipson to engage in the relevant misleading conduct by which Jet Corporation was induced to enter into and complete the Petres,

Westwind and Dipson sales aqreements. Mr. Chernov relied on

the observations of Adam J. in Rubenstein v. Truth & Sportsman

Ltd. £19601 VLR 473 relating to allegations that the defendant

Marks directed and authorized other defendants to publish defamatory material. His Honour at p.476 (supra) referred to

the words of Cotton L.J. in Phillips v. Phillinos (1878) 4 QBD

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127 at p.i39; "It 1s absolutely essential that the pleading not be embarrassing to the defendants, should state those facts which will put the defendants on their guard and tell them what they will have to meet when the case comes on for trial." His Honour held that the mere bold assertion that the defendant Marks directed or authorized the other defendants to publish the alleged libel offended the fundamental rule that every pleading shall contain, albeit in summary form a statement of the material facts. The assertion in that case was bold in that 1t was isolated from any circumstance or context connecting the defendant Marks wath the other defendants or the publication in question. That is not the case with this pleading, where the allegation that Collier and Hogg caused the agreements to be carried out has significance in that, as directors they were in a position to influence and perhaps cause Jet Corporation -to enter into and carry out the sales agreements. The pleadings may well prompt a request for

particulars but does not call for an order striking out a

The second path pursued by Mr. Chernov was that it was

alleged against Collier and Hogg that the conduct in which

they are said to have been involved in was conduct in which they were involved in their capacity as directors of Jet Corporation and when they had control of Jet Corporation. He submitted, therefore, that the pleading discloses that Jet

Corporation was not misled because two directors were aware of

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the falsity of the representations by which Jet Corporation is said to have been misled; theirs was the mind of Jet Corporation by which, with full awareness of all reievant circumstances, Jet Corporation decided to enter into and

Mr. Chernov pointed out also that there is no allegation that Collier and Hogq were in collusion or conspiracy with Petres, Westwind or Dipson under which they were to betray their duty to Jet Corporation by causing or allowing it to

enter into and complete the Petres, Westwind and Dipson sales

In relation to the matters so raised Mr. Graham contended that they involved difficult questions of law. He

said that it could not be said at this stage of this action that the absence of a closer nexus between Petres, Westwind

and Dipson on the 'one hand and Collier and Hogg on the other,

other than that disclosed, precluded a finding that Collier

and Hogg aided, abetted, counselled, were concerned in ora party to the contravention by Petres, Westwind and Dipson of s.52 of the Act. The allegation that Collier and Hoag, as Directors of Jet Corporation caused 1t to enter into the Petres, Westwind and Dipson sales agreements knowing of the

falsity of the representations therein constituted a positive

requirements of involvement by them in the contravention. At

any cate, he said, a connection between Collier and Hoag and vw misleading and deceptive conduct of Petres, Westwind and Nipsen was indicated with sutficient siaqniricance to induce the Courk boa refiain from striking out the claims against Collier and Hoac. There was certainly a positive act alleged on their part which was an integral step in the conduct of

Petres Westwind and Dipson in misleading or deceiving Jet

conduct ef Col y and Hoge as Directors of Jet Corporaticn

che pleading de ad the alleqation that that company was misled, Mr. Graham said that, once again. there can he at this stage no clear acceptance or even revlection cf this suggestion. It could not be said with certainty that the conduct of a director or of more thar one director of a company who. in a particular transaction committed a breach of duty by allowing or perhaps promoting the deception of the

company by some other person, necessarily meant that the

In my opinion. this is not one of the very clear cases

to justifv the summary intervention of the court, to use the Language of Dixon J. in Dev_v. Victorian Railwavs Commissioner

(1949) 78 CLR at p.Y¥1l. Ic is not "so obviously untenable that

tk cannot possibly succeed" (See General Steel Industries

Inc. vw. Conmis vr ter Railways (NSW) (1964) 112 CLR 125 at

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pp.128-9). The appropriate time for a decision on this

submission will be when the evidence has been heard and the

LT turn then to the motion filed on behalf of Petres, Westwind. Dipson, Wilson. Huttlev. Scavela and Rovoil. At the hearing cf this apreal Mr. Hargrave addressed arauments relating to the Statement of Claim oniv to Wilson and Huttlev. On behalf ot Wilson and Huttley Mr. Hargrave contended tnat an allegation made against them that thev as Directors of. and persons in control of. det Corporation made che saies agreement and pre-settlement representations by causing the Petres. Westwind and Dipgon sales aaqreements to be entered into and completed by Jet Corporation, was defective as a plea in that it was embarrassing, and but a conclusion of law. not an allegaticn of fact. The observations above with reference to the similar contention of Mr. Chernov on behalf of Collier and Hoag apply to this contention of Mr. Hargrave. It is

Similarly Mr. Hargrave adopted what Mr. Chernov had said concerning Jet Corporation not being able to mislead itself, there being an identity of minds between the alleded representors and the representee. The comments already made relating to this aspect of the argument are also applicable to the claims made against Huttley and Wilson. But it is to be

noted, in passing, that in the case of Huttley and Wilson, as

r no alleqations are made in the Statement of Claim of awareness

on their part of the untruth of the sales agreement and

pre~-settlement representations, it 1s even more difficult for Mr. Hararave to sustain the contention. And in turn this

further weakens Mr. Chernov's submissions that the minds of

his clients have to be treated as the mind of the company.

Although it was not arqued by Mr. Hargrave, the lack of an allegation in the pleadings of awareness by Huttley and Wilson of the untruth of the sales aqreement and pre-settlement representations may constitute a defect in the case sought to be made that these appellant parties were

"involved" aun contraventions of the Act pursuant to s.75B

The same comment may be made about the pleadings as they relate to Scapela and Rovoil and in addition there are no allegations in the Statement of Claim of a positive act. As to this latter point, the pleadings suffer from the same flaw as the pleadings relating to Sent and Forshaw and are subject to the observations hereinbefore appearing concerning the case

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respect to their applications tor an order that Jet

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Corporation ehould provide gecurity for their costs of defending the action. the appeal should be allowed. Each concedes that the orders rejecting the applications were made by the learned judge in the exercise of his discretion in an interlocutory proceeding in a matter of practice and procedure. It is established that an appellule court should exercise particular caution and be extremely reluctant to interfere with decisions of primary judaes relating to matters of practice and procedure which do not determine any substantive rights of the parties. If it be shown that relevant considerations were not taken into account or irrelevant considerations were given weight and that the decision results in substantial injustice, the discretion of the Court of Appeal may be substituted for that of the learned Judge. Of course, even where it is not plainly demonstrated that relevant considerations were iqnored or irrelevant considerations were qiven weight, if an appeal court is satisfied that the decision is plainly erroneous, it may draw the inference that some critical error of principle had

occurred. See the observations of Dixon J., as he then was,

and Evatt and McTiernan JJ. in House v. The King (1936) 55 CLR

449 at 505. But, as was approved in the majority judgment in

Adam _P, Brown Male Fashions Pty. Ltd. v. Philip Morris Inc.

(1981) 148 CLR 169 at 177, a tight rein should be kept "upon interference with a decision not being one determining substantive rights and ona point of practice or procedure".

See also Jordan C.J. in In re the will of F. B. Gilbert (der)

a nt et Nae a ee Ae TT ae ARR Ye Be ne he ee ne ee ek rn

eee Ante a al Satta eae teraars teem este aden Le be cant ate he ate

RTE TT ee NES TA a PR Ne Eee pare See SE gat ~ ne sans ~ - is, wees ve e ~~? . . "e

Companies Act (Vic.) 1981 does not confer upon the Federal

Court jurisdiction to exercise the discretion contained therein. He argued that the Court's jurisdiction was limited to 0.28 ©.3 of the rules. Having regard to the generality with which a provision in substance similar to s.533 is in force in other jurisdictions it would be strange that a provision so widely approved by the legislature, no doubt because of the limitation of the liability of companies,

should not extend to this Court. But because of the terms of

s.56 of the Federal Court of Australia Act 1976 and s.79 of

the Judiciary Act 1903-1973 the view that it does confer jurisdiction has been taken and applied by single Judges of this Court in Drumdurno ov. Braham (1982) 42 ALR 563 and in

Tradestock v. TNT Management Pty. Ltd. (1977) 30 FLR 343;

(1977) 14 ALR 52; and by the Full Court of this Court in Bell

Wholesale Company Pty. Ltd. v. Gates Export Corporation G113

of 1983 (unreported). In the last mentioned case the Full Court expressed its concurrence with the decision of thre primary judge that s.533(1) of the Companies Code 1981(Q) was by, inter alia, s.79 of the Judiciary Act 1903-1973 made applicable to proceedings in this Court. And with this I would respectfully agree. Thus s.533 of the Companies Act

consideration of s.533 of the Companies Act (Vic.) 1981 was within the iurisdiction of the Court. He dealt with the question of security for costs with that section in mind, and also by having regard to 0.28 r.3 of the rules. He made

reference to to, inter alia, Drumducno v. Braham (1982) 42 ALR

563; Newton Travel Services Phy. Ltd. v. Ansett Transport

industries (Operations) Pty. Ltd. (1982) 44 ALR 163;

Tradestock Ptv. Ltd. v. TNT (Management) Pty. Ltd. & Ors

(1977) 14 ALR SZ: Memutu Ptv. Ltd. v. Lissenden (1983) 8 ACLR

364 and Buckley ov. Bennell Desien and Constructions Pty. Ltda.

(a) that Jet Corporation would be unable to pay the costs of the appellant parties if they were successful in their defence;

(b) that the court was unable to form a view as to the prospects of Jet Corporation succeeding in its claims;

(ec) that the court was satisfied that if Jet Corporation succeeded in its claims it may appear that its financial position was worsened by the wrongful

(d) that the court was satisfied that the claim of Jet Corporation was a qenuine one;

(e) that there was no suggestion that the applications for

SO terreno ements ee Eee a pe en a ee ge ee ne ee en nm ee

oO security for costs were brought oppressively in an attempt to stifle a genuine claim;

(f) that most of the facts which Jet Corporation is

required to prove to establish its claim are within

parties and that many of the documents relevant to the claim are in their custody or control of some or other of them;

(gq) that there are aspects of public interest inherent in a claim under the Trade Practices Act 1974 which

weighed in the balance aqainst the making of an order

Ch) that it had not been proved that an order for security for costs would mean that Jet Corporation would not proceed with its claim;

(i) the court was not satisfied that Jet Corporation was not suing for its own benefit but for the benefit of

Looking at item (i) above it would appear that the total

situation is not adequately covered unless further words are

ream ht Fee nk Arent SL rte rh Ae Ne em aie Senate Um oe cama

added, such as, "but it appears that the action is under the control of the receiver and manager appointed by Citicorp, is financed by Citicorp and is pursued for the benefit primarily of Citicorp and, subject to the interest of Citicorp, for

unsecured creditors and Jet Corporation and that the decision

ELA LE LOL NT LE ONL LEST LLC TE A Ee OE RRA A EAE SI I Fe A A RN A NS

Tae tee Nts a tenn FLAT al Hn helm eaalanee Atk Lanne oe Parmesan ob

whether the action should proceed or not is that of Citicorp." From the transcript of the proceeding before the learned Judae at first instance it appears that the case for the appellants concentrated rather on the notion that Jet Corporation was suing for the benefit of Citicorp within the meaning of 0.28 ¥.3(1)(b). In this respect it was argued by Mr. Graham before the learned Judge that the action was brought by Jet Corporation in its own name and in its own right even though the right to the management of its affairs and the ability to cause it to engage in litigation resides in the receiver and manager. He pointed out that, so far as appears, should the action proceed the damages recoverable would or muidqht well exceed the sum due to Citicorp in respect of its security. On this basis, in my view, it could well be held, as it was by the learned judge, that the action was not brought by Jet Corporation "for the benefit of" Citicorp within the meaning

of the term: see Co-operative Farmers & Graziers Direct Meat

Supply Ltd. v. Smart £1977] VR 386; Riot Nominees Ptv. Ltd. v.

Suzuki (Australia) Pty. Ltd. & Ors. (1981) 34 ALR 652. But to

approach the matter through 0.28 r.3(1)(b) alone is to obscure the reality of the situation, namely that Citicorp is using the name of Jet Corporation, as it is entitled to do and itself controlling the litigation for the purpose, primarily, of recovering its own debt. It is this reality which becomes important when the matter 1s approached with reference to $.533 of the Companies Act (Vic.) 1981. And in the decision

of the matter by reference to 5.533 in the judgment under

1 ma afinbenee evietie Safes Je Late el Sad ae ernie y a lt the Lat anne a non ed Aaa Settee ele Ae Anes oA eed OY oe Te ae

appeal it does not appear that this factor was accorded weight. It would seem that the considerations of justice involved therein were not the subject of explicit submission. Indeed it only emerged in the hearing of this appeal at a late stage of Mr. Archibald's reply. The situation is that unless security for costs 1s provided Citicorp has the privilege of suing on its initiative and responsibility, for its benefit, on terms that if it loses it has no responsibility for costs. From the point of view of the justice of the situation this is far removed from a case where a plaintiff or applicant is the party instituting and conducting the litigation. The receiver and manager was appointed on 28 October 1982. The action was commenced on 27 June 1983. The commencement and control of the proceedings brought in the name of Jet Corporation may be regarded therefore as having resided in the receiver and manager. There is no suagestion from Jet Corporation that an order for security for costs will cause the action to be discontinued. The inference to be drawn from this circumstance and the evidence is that there are funds available for the maintenance of these proceedings whether or not an order for security for costs is made against Jet

Once it appears, not only that there is a_ secured creditor in respect of whose claims against an insolvent company the proceedings are of special interest, but that the

proceedings have been initiated by, and are controlled by the

RENE NT LE EI ANN IEEE AEN ATO AIRS SH eR IR ee RE Nt FHT 7 7 Nana ve te ae a ¢ 2

receiver and manager appointed by that secured creditor whose primary purpose is the recovery of his own debt, and there is a reasonable inference that that secured creditor is supporting the litigation financially, the injustice of that secured creditor pursuing his own interest in an action against the appellant parties with no risk to itself should the appellant parties succeed in their defence assumes a special significance on the question of the justice of agranting or refusing an order for security for costs. It isa weighty consideration that the decision whether to sue or not

to sue is that of Citicorp acting through the receiver and

It was said by Meqarry V.C. in Pearson v. Naydler £1977]

1 WER 899 at 906-7: £19771 3 All ER 531 at 536-7 that:-

"It seems plain enough that the inability of the plaintiff company to pay the defendants' costs is a matter which not only opens the jurisdiction but also provides a substantial factor in the decision whether to exercise it. It is inherent in the whole concept of the section that the court 1s to have power to order the company to do what it is likely to find difficult in doing, namelv, to provide security for the costs which ex hypothesi it is likely to be unable to pay. At the same time, the court must. not allow the section to be used as an instrument of oppression, as hy shutting out a smail

company from making a genuine claim aqainst a large company. ... As against that, the court

must not show such a reluctance to order security for costs that this becomes a weapon whereby the impecunious company can use its inabllity to pay casts as a means of putting unfair pressure on a more prosperous company. Litigation in which the defendant will be

4 . - - . 7 Ane AanSataatar ane Ane Dentmnndtemen watnthin = 8 wee Le de ec ee A ee ee

he te nL ett ie eat ls AN I lk Reel IN Al a gt Me a et EMMI nite Mn me ne i el

cases that fall squarely within the section." Noting the Vice-Chancellor's reference to the use by a company of its impecuniosity as a weapon, it may be said that the use by a solvent secured creditor of the name of its insolvent company debtor in an action against a solvent party may well constitute the use of the company's impecuniosity as a weapon

even less justifiably. And that is the situation in this

It appears, not by evidence, but by statement from the Bar Table that on 14 December 1983 an order was made by the Supreme Court of Victoria that Jet Corporation be wound up. A liquidator was appointed on that date. The order the subject of this appeal was made an 4 October 1983 and thus. before the order for winding up Jet Corporation. No submissions arising

out of the winding up or the appointment of the liquidator

were made to this Court, save that Mr. Archibald submitted that the appointment of the liquidator did not disturb the

When Mr. Archibald was asked whether the receiver and

manager had not been replaced by the liquidator he replied,

"They would not be displaced because the liquidator had

SLE EL ETN RM TE ATS A NTN AY REI ARERR AY RNR rR Re yp eee = Maes mo cat oe =

• fo 2"

rights, they are rights in respect of the unsecured creditors

yepresent the rights of the secured creditors." It would seem

sufficient answer. It is supported by reference to the

observations of Romer L.J. in Gouch's Garages Limited v.

"It is perfectly true (and it has been laid down over and over again) that where, as happened in this case, the debenture or trust deed securing the debenture contains the usual clause, that the receiver appointed under the deed shall be deemed to be the agent of the company, that the winding up of the company, or the compulsory liquidation of the company puts an end to the agency. But it does not put an endin any way to the powers of the receiver. In my opinion, when this liquidation order was made, the right of the receiver to proceed in the name of the company in the county court was in no wise affected."

Puasley £19301 1 KB 615. There, a receiver had bequn County

Court proceedings in the name of the relevant company to

afterwards an order winding up the company was made. Romer

"All the principal authorities in my opinion lead to the same conclusion, which I will put

in my own words as follows. Winding up deprives the receiver, under such a debenture

company personally by acting as its agent. It does not in the least affect his powers to

ret eet a - Nana Eo temeetae B NL tn ee OE Let ke Oe Foe AORN Ren et ell AO dae la A gee etl a ethene adn Oe ene ee ne

NAPIER FE AN RRERET 2R CET Ee EE TA ne Ee Se ee penne a

See also the remarks of Goulding J. in Sowman v. David Samuel

nnn wate met A AT Lhe aan SER EW etal tes teeta treed "as a eS Sill enfin ea ee ae meh NT

hold and dispose of the company's property comprised in the debenture, ancluding his power to use the company's name for that

purpose, for such powers are given by the disposition of the company's property which it made (in equity) by the debenture itself."

In relation to the position of a defendant who, at the

insistence of a receiver and manager, is sued in the name of a company of which it no longer acts as agent because of the

winding up of the company the observations of Greer L.J. in

Gough's Garages Ltd. v. Puasley (supra) are in point. He said

that the action "was properly brought by the receiver for the debenture holders in the name of the company. If the defendant landlords thought it was a hardship their remedy was to say, 'This company is in liquidation. If this action is to go on we must have security for costs in case we succeed in

Therefore, although it was not shown that, within the meaning of the words of 0.28 r.3(1)(b) of the rules. Jet Corporation is suing not for its own benefit but for the benefit of some other person, namely Citicorp, nevertheless as indicated above the reality is that the action is brought by Citicorp, and is brought for its. own immediate benefit rather than upon some hope that success in the proceedings will provide some benefit to Jet Corporation itself. Since the argument in this case I have been referred to the views of

Toohey J. in Caruso Australia Pty. Ltd. v. Portec (Australia) Pty. Ltd. WAG 29 of 1983 decided on 30 March 1984

Se a a Ps aR ETN Hamat mw een A bk en ae ad Oe nly dn oe

(unreported), which are relevant to circumstances such as

In the light of the above it can be seen that the protection of the public interest in the enforcement of a liability under the Act does not depend on the absence of an order for security for costs. The action will proceed whether or not an order for security for costs is made. It can also be seen that the force which might otherwise have resided in items (b), (c), (ad) and (f) above is, at least, greatly

It is to be observed that although the learned Judge was of opinion that s.533 of the Companies Act 1981 (Vic.) was

applicable to a proceeding brought by a company in the Court

he did not expressly attribute any significance to the statutory purpose of the section. Provisions similar or identical to s.533 have been enacted in England and throughout

Australia. It proceeds by reference to the limitation of liability which is provided to corporations in the conduct of their affairs and the distinction between that limitation of liability and the unlimited liability of private persons. In general the impecunious condition of a litigant whois a natural person is not a ground for security for costs. But the section provides, in itself, authority to make an order

for security for costs where all that is show is that the

company will be unable to pay the costs should it fail. If it

et ee Bnet meats Renta ne Re Pe ce ee Me Ne a ee ne ee

is going too far to say, as was said by Street C.J. in Buckley v. Benneli Desiaqn and Constructions Pty. Limited (supra) at

303, and as I accepted in Tradestock Pty. Ltd. v. TNT

(Management) Pty. Ltd. & Ors. (supra), that the discretion

conferred by the section should be exercised merely with a

predisposition in favour of the defendant party, nevertheless,

the discretion is for the protection of the defendant from the

unfair and possibly burdensome consequences of an unsuccessful

claim against him by an impecunious company. In every case of

such an action, where the result is in real doubt, risk of

those consequences exists, and the need for protection exists. To my mind the statutory purpose is itself a factor deserving of weight in the exercise of the discretion. And the greater the quantum of loss if the risk materializes and the less

apparent the chances of success, the greater the weight. As was said by Megarry V.C. in the observations mentioned above, "the statute mot only opens the jurisdiction but also provides

a substantial factor in the decision to exercise it.".

In the result it is seen that the refusal of an order for security for costs operates with substantial injustice to the appellant parties and proceeds without recognition of Citicorp as dominus litis. Accordingly an order for security

for costs in such amount or upon such conditions as to the

Having regard to the foregoing it is my view that this

PbS be UR 8 a dhe DP ee = a tbe! meee Beas Alc elie hake STR mete eames wieder ee mate ee

SET RTT ELE oT LT GLE OO EN EEE TINE A A AORN I A te ete = mre mya A BaD

@ is an appeal in which it is proper for the Court on appeal to

act upon the view that in the exercise by the learned Judge of

the discretion conferred upon hima critical aspect of the

situation was obscured and not given appropriate weight and

1. The appeals of the appellant parties are allowed with

| 2. Leave is granted to Jet Corporation to amend the

3. Leave is reserved to the appellant parties to apply to

S. The determination of the amount and nature of such

security is referred to the Judge from whose decision

41 preceding pages are a true copy of the Reasons for Judament herein of his Honour Mr. Justice

pie) tint anti ns o > we te ie oe te eel Alena mainte sane Rett nttapniinn at Mie SS

@ predisposition in favour of granting a defendant sued by an

impecunious company protection by an order for security for

costs. He referred to Buckley v. _Bennell Design and

Constructions Ptv. Limited (1974) 1 A.C.L.R. 301 (Buckley) at

pp.304-5: Pearson v. Naydler (1977) 1 W.L.R. 899 at pp.904-905,

906-7: Pacific Acceptance Corporation Ltd. v. Forsyth (1967) 2

4 N.S.W.R. 402 at p.407: Specialised Building Materials Pty. Ltd.

) v. _E.U. Occusted Pty. Ltd. (1981) 58 F.L.R. 270 at p.273-4:

Tradestock Pty. Ltd. v. TNT (Management) Pty. Ltd. 14 ALR 52 (Tradestock) at p.56: Newtons Travel Services Pty. Ltd. v.

Ansett Transport Industries (Operations) Pty. Ltd. 44 ALR 163

(Newtons Travel Services) at p. 172: Collignon Developments Ptv.

Ltd. v. Wurth (1975) 1 A.C.L.R. 314 (Collignon) at = p.315:

Lynnebry Ptv. Ltd. v. Farquhar Enterprises Ptv. Ltd. (1977) 3

A.C.L.R. 133 (Lynnebry) at pp.134-5, 136: Salterqgate Insurance Co. Ltd. v. Hagerty (1979)_4 A.C.L.R. 531 (Salterqate) at

pp.533-4. Further, he submitted that where it appeared that the making of such an order would not preclude an impecunious corporate applicant from pursuing its claim, then an order should

be made in the absence of special circumstances: Newtons Travel

Services: Drumdurno Pty. Ltd. v. Braham 42 ALR 563 (Drumdurno) at

p.570: Tradestock at p.56. He submitted there were no relevant

special circumstances here; that where there was an impecunious

are ek Sa me ete hee a a elle Reanim Lene bee meee eo

corporate applicant and other persons with means to provide security and likely to be the recipients of the fruits of any victory, an order for security should be made. He referred to

Lloyd v. Hathern Station Brick Company Limited (1901) 85 L.T. 158

Tete tat nN ae ane Aten ele teeta eh cen a ed sso Rall a ta Mende ee tents nema iinet bene LARP ly ee ee an ne Lan

Ea re ES TORT SNORT SONICS OY ERT NOR-OCT AO SOR oh Set Se aS O17) a See a

t ' ~ 4 onal Oe dae a aha silts apt el SI a ne i i ee arene CeO RN ETAT YORE TFA rn rst

(Lloyd): Semler v. Murphy (1968) Ch. 183 at pp.191-192: Cowell

v. Taylor (1886) 31 Ch.D. 34 at pp.38-39: Salterqate,. He

referred to Order 28 r.3(1)(b). He referred to Andrews v. Caltex

Oil (Australia) Pty. Ltd. 40 ALR 305 (Andrews) at p.308. He

submitted an impecunious corporate applicant exercising a personal right under s.82 or s.87 of the Act was in no better position to resist an order for security for costs than one in any other personal action. For the purpose of the motion, he submitted the Court should assume that the respondents would be successful in their defence. He referred to Salteraqate at p.535: Colliagnon at p.315: Lynnebry. He contended that the learned primary Judge erred in the exercise of his discretion in giving too little weight to the fact that an order for security would not prevent Jet Corp proceeding with its claim: that Jet Corp's claim was under the Act; and that Jet Corp was suing, not for its own benefit, but for the benefit of Citicorp in whole or in substantial part. He submitted that the Federal Court was a Court having jurisdiction in the matter for the purposes of s.533

of the Companies (Victoria) Code and might therefore apply the

provisions of that section in considering such an application.

He referred to Bell Wholesale Company Pty. Limited v. Gates

Export Corporation, Full Court of the Federal Court (G.113 of

ateietaation dar Siete aaemelecnieeaneammnioan mend

cementite anand eter a tee amen i nee emt celibate a tated

Mr. Chernov of Queen's Counsel who appeared for Coilier and Hogg adopted what senior counsel had submitted on behalf of Sent and Forshaw as to the issues and as to the means of aiding and abetting the vendor companies. He submitted, further, that the facts as pleaded against his clients if accepted did not establish that they had aided and abetted the vendor companies; alternatively, the Statement of Claim was embarrassing. He pointed out that at no stage had Collier or Hogg anything to do with the vendor companies though it was admitted that they had invested in a trust, through their respective family companies, of which Jet Corp was the trustee. He said the alleqation amounted to one that Messrs. Collier and Hoqg, having through those companies invested more than a million dollars to acquire units, had then somehow induced Jet Corp to buy something which was not only worthless but also had acted fraudulentiy in so doing. He argued that this as a matter of common sense did not "stand up". The first mention of Collier, he pointed out, was in para.50 which amounted to an allegation that the false representations were made by "causing" the Petres Sales Agreement, the Westwind Sales Agreement and the Dipson Sales Agreement to be prepared and to be entered into by Jet Corp and causing the Lidgett report to be prepared. He submitted that that allegation was either meaningless or embarrassing; that 1t pleaded a conclusion and not a fact from which one could be drawn. Again in respect of Collier, the Statement of Claim, he said, in para.53 made the same allegation in relation to the so

called Pre-Settlement representations. Paragraph 54 of the

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Statement of Claim, he noted, attributed the Pre-Settlement representations to Hoqq by his causing the Petres, Westwind and Dipson Sales Agreements to be carried out and completed by Jet Corp without alteration and causing the Touche Ross certificate dated 21 December 1981 to be prepared. Later he submitted it was attempted to involve Collier and Hogq in the alleqed false representations by putting forward firstly that Collier was a director of Jet Corp and, although aware that the Sales and Pre-Settlement representations were untrue, had nevertheless caused or permitted Jet Corp to enter into and complete the three Sales Agreements. Secondly 1t was alleged that Hoqg was also aware that Pre-Settlement representations were untrue yet caused or permitted Jet Corp to complete the three Sales Aqreements. Both Collier and Hogg thus, he said, aided and abetted the vendors. The allegation, accordina to the Statement of Claim, was of awareness and causing Jet Corp both to enter the Agreements and to complete them. He submitted that in the case of both clients there was a missing link; there was no nexus pleaded to establish that Collier or Hoag participated with the vendors in making the representations. He submitted in summarv that there were no facts pleaded which linked Collier or Hoga with any relevant conduct of the vendors. He referred to Rubenstein . As to the capacity of Collier and Hogg, he referred

to Tesco Supermarkets Ltd, v. Nattrass (1972) A.C. 153 at p.171.

He submitted that certain paras. of the Statement of Claim (e.q. 50-59) relating to Collier and Hogg should be struck out. There would then be nothing left as against his clients. Therefore,

against them the whole action should be struck out.

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nner rn en at et i ee i ne ae athe tte tel ane nee ae ee eterkinns = stitial

Upon the application for security for costs, he referred to the affidavit of Collier wherein the latter expressed his belief that Jet Corp was in serious financial difficuities; that if it failed in the action there was a substantial probability of an inability to pay his costs. Counsel submitted that as to ordering security for costs, the Court had a discretion; that in exercising it there should be taken into account all relevant circumstances. These included that Jet Corp would not be able to pay the costs if unsuccessful at the trial; an order for security would not shut out Jet Corp from pursuing its claim; it was not possible to say on the material presently available that Jet Corp's impecuniosity was brought

about by the actions of Collier and Hogg: Memutu Pty. Ltd. v.

Lissenden (1983) 8 ACLR 364. He also referred to Newton's Travel Services: Tradestock: Drumdurno and to the Reasons for Judament of the learned primary Judge, who, he submitted, had not made any

Counsel for the respondents Petres, Dipson, Westwind, Wilson, Huttley, Scapela and Rovoil adopted the arguments of Mr. Chernov as to the wording used in paras. 50 and 53 of the Statement of Claim so far as they referred to Messrs. Wilson and Huttley and, in particular, the use of "causing". He submitted those paragraphs should be struck out with leave to re-plead. He did not argue that the whole of the proceedings as presently

pleaded did not disclose a cause of action against the

Lalande cde neeementendineieen ieisieanieemtenetnmmnmemnetemmeieatanteanemn meme 27-206)

@ respondents. He submitted further that if Messrs. Wilson and Huttiey could be said to be in effective control of the three vendor companies (i.e. Petres, Dipson and Westwind) and of Jet Corp, albeit with Collier, the person said to be misled (Jet

Corp) could not be misled. He supported earlier arquments as to

security for costs. He referred to the financial interest his

clients had in the Jet Corporation Australia Trust as relevant to

the exercise of discretion in favour of ordering security for

costs. He adopted arquments already put in relation to s.533 of

the Companies (Victoria) Code and as to Jet Corp's not being

prevented by such an order from litigating its claim. As to the

way in which the discretion to qrant or refuse to order security should be exercised, he referred to Tradestock per Smithers J. at p.56; on the clear balance here security, he submitted, should have been ordered particularly as the intending applicant clearly would not be prevented from litigating its claim. He arqued that the order could be made under s.533(1) or the Federal Court of Australia Act 1976 s.56(1). He referred to Order 28 r.3 sub-r.1. He submitted that his Honour was in error in not

holding that this was an action for the benefit of Citicorp. He

referred to Tulloch Limited v.. Walker (Unreported, 8 December

1976, per Yeldham J.): Lloyd at p.159: Andrews at p.308. He submitted the mere fact that the action was beindg brought pursuant to the Act should not place a plaintiff in any better position than any other plaintiff to entitle him to resist an order for security. Moreover he submitted the learned primary

Judge had not given weight or sufficient weight to the hardship

x ened dale ed ih ta aban An AS NAST Hale Doha Uinta De abled hikes Desks at wane ete ate Aare 2 r "4 By a

lawman etated yh tne She tabbemmbambine Malad Ca Rc a AIS, Naha Cend te ee Le Rie eae neers i amet meee Bee ee o

• FO alle Ni eam a NCAR 2 Ok mee nad SENT POSE eer cee ceagemete eee ene seer ie eg ee " = fe - = he = malta a eS al

in the event that no orders for security were made to the

respondents particularly to the possibility still completely at

large, viz. that they would be successful in their defences.

Senior counsel for Jet Corp, Mr. Graham of Queen's Counsel, pointed out that Collier and Hogg by their Notice of Motion had not sought any relief in terms under Order 11 r.16 which enabled the Court to strike out a pleading in whole or in part. He drew attention to the conduct of the matter before the primary Judge, i.e. on behalf of Collier and Hogg an order was sought pursuant to the provisions of Order 20 r.2; they had not sought any relief in terms of Order 11 £.16 which enabled the Court to strike out pleadings. Counsel submitted that the matter had not been then conducted on the basis that there was no cause of action, that the Statement of Claim was incurably bad. I note, however, that Order 20 r.2 does envisage that proceedings may be dismissed generally. Though there had been, he said, an application by Collier and Hogg to have the matter dismissed at the threshold, it was adjourned and not disposed of by the primary Judge. Further, he said, there had been no attempt to invoke the provisions of Order 29 r.2. He described what was before this Court as a "Dey's type of application", meaning, as I understand him, that the respondents here. in order to succeed, must show, in terms of the words of Dixon J.. as quoted in the Reasons for Judgment of the learned primary Judge, that there was

not "a real question to be determined whether of fact or law....

Only then, he said, could the various respondents succeed. He

Seek i ne ete, ae enna mt pe A ce pA a A i RE or nM

2l. referred to the Federal Court Rules. He submitted that evena close analysis of the requisite principles would not warrant the step of striking out the action. He referred ta questions which had been raised before the primary Judge including whether a proceeding brought pursuant to s.82 of the Act compiaining of a contravention of s.52 could succeed where some of the directors of the "victim" company were party themselves to the deceptive conduct and thus not themselves deceived. Such a question, he said, was not one which could appropriately be decided in a proceeding of the present nature. An allied question, he said, arose where it had not been shown that all the directors of the "victim" company had been deceived. A further question was what must be established in order to show that a person was "involved" in the contravention within the meaning of s.75B of the Act. Such were the importance and complexity of these matters that the present application was quite inappropriate and misconceived for their resolution. He referred to s.52 and 5.82. the ambit of which had not been fully explored in decided cases. He submitted there was strong argument that there had been a contravention of s.52 and persons who were directors were "involved" within the meaning of s.75B. He said, in effect, that a question arose as to whether a company deceived by its own agent who was in league with another company which introduced the deception nevertheless could claim damages pursuant to s.52 and s.82. He pointed out there was not complete identity of directors of the vendor companies and of the victim, Jet Corp. He made further

submissions in relation to each of the respondents; particularly

2 Renna od - ~ eR ATE erie ge eran a _ wows ae Sp - . ai a ae i Ra OE RS seca o - ron remem ep

in relation to the application of Sent and Forshaw, he submitted it was important that in the second Wilson Agreement 3 million of ; the purchase price of 4.8 million was not payable until 20 July | 1983. Further, he submitted it should be noted that at the time Sent and Forshaw sold their interests in the group of companies | and entities they were aware the purchaser was unable to pay the purchase price in accordance with the Agreements; that this knowledge continued to prevail at the time of the making of Sales Agreement representations and the Pre-Settlement representations. He submitted that Sent and Forshaw at the date of the three Sales Agreements knew the representations were untrue and affected the reality of the purchase price payable under them. Then, he submitted, it was alleqed that Sent and Forshaw were aware at the time when the Sales Agreements were completed in December 1981 that such Agreements were going to be completed notwithstanding the misrepresentations; those misrepresentations were still being made and were still untrue. Further, notwithstanding all these matters, when it came to the time of completion of the Sales Agreements, they were receiving money due to them under the

Wilson Agreements being monies which would not have been paid had

it not been for the fact that the Sales Agreements had been entered into and completed. He submitted that the inabilitv of the purchasers to pay the amount due under the contracts, payment not being due well into the future, coupled with the fact that

misrepresentations would be made in order to achieve a sale and

{ |f { { || enable payment to them, was sufficient to make Sent and Forshaw

iene dorantol irate Gh bee lya seee te - tteenl tel

parties to the contraventions by other persons. He submitted it

clearly emerged from Yorke v. Lucas that the Court considered a

person could he party to a contravention if he participated or concurred in or assented to the conduct; that here the Statement of Claim was to be read as implying a concurrence in or assent to the contravention by Sent and Forshaw. Further, he submitted, that it was sufficient to alleaqe that Sent and Forshaw had every reason to concur and assent in the misconduct; alternatively, the proceeding could not therebv be said to be incurably bad; there was sufficient in the Statement of Claim to meet the test

in Yorke v. Lucas. Referring to an argument put on behalf of

Sent and Forshaw, he submitted that performance of a contract containing misleading misrepresentations could constitute a4 restatement or reaffirmation of those misrepresentations in

As to submissions made on behalf of Collier and Hog, he

argued that any investment of money made by them in Jet Corp was

Whilst supporting the decision appealed, counsel submitted the Court sitting as a Full Court had not yet formulated its approach in dealing with appeals against interlocutory orders; that this would be a case where there might be such a formulation and statement of principle. He argued that a Full Court should be extremely reluctant to

interfere in decisions of primary Judges on interlocutory

cae tere me LN an Ane al Me Re er A ke ee ee en et oe et

Brn eer TERT ae rE eR RR OH RYN Nn AY RR NR ap FQ et I =

applications and should reverse those decisions only if thoroughly convinced they were wrond. Such appeals, he said, were an impediment to the efficient operation of the judicial

system, caused delay, entailed expense and delayed the trial.

Me. Hayes (following on the question of security for

costs) submitted that 5.533 of the Companies (Victoria) Code did

not apply to give this Court a discretion. He referred to T.N.

Lucas Pty. Ltd. v. Centrepoint Freeholds Ptv, Ltd. (unreported,

30 March 1984, Federal Court of Australia) per Jenkinson J.

He submitted there was nothing 1n s.79 of the Judiciarv Act 1903 which imported the provisions of s.533 for the purpose of exercising the discretion s.79 sets out. He referred to Bell Wholesale which was inconsistent with the decision of Jenkinson

Jd. in T.N. Lucas Pty. Ltd. v. Centrepoint Freeholds Pty. Ltd.

(supra) and significant as s.533 commenced with a predisposition in favour of granting security. He submitted that there was no predisposition to grant security where impecuniosity has been shown nor did Buckley support that notion. It was, he submitted,

important that this was an appeal from an exercise of discretion as Courts have been reluctant to overturn such exercises of discretion. It was incorrect to say, he submitted, that his Honour had not reasonably arrived at the view that there should not be security. He said, upon the aspect of discretion, that

the obligations placed upon the respondents under the Act were in

the public interest. He submitted the matter should be regarded

se 5B i tate cr cl a a hentia Let A ee ee en ha nate ncaa

i P ° i. tn Soman eee, -- nae cement et ee men ee enn ee et.

as one in which Jet Corp was suing for itself and it was covered

In reply, it was arqued by Mr. Archibald that the Federal Court had expressly held in the Bell Wholesale case that the burden of raising material to show that an order for security would frustrate the litigation lay on the company rather than

My reference to arguments submitted by counsel indicates their lack of unanimity as to the conduct of the application before the learned primary Judge, i.e. there was a conflict of opinion as to whether the application to him was merely to strike out some or all of the Statement of Claim; or to dismiss the action entirely. Rather than attempt to resolve the conflict and having regard to the very complete arguments of all counsel, it will be more appropriate to consider the matter in respect of those respondents who did seek either dismissal or striking out of the action or Statement of Claim as if those forms of relief were sought in the alternative. Further, in my opinion, difficult questions of law are to be solved if and when the matter is heard. One such question may arise where directors are common to two companies, one company is guilty of false and misleading conduct implemented by its directors, and this is conveyed to the other company, possibly through a director who is

complicit in the reprehensible design or who is a common

director. The knowledge of a director or his actions may not

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always be that of, or bind, the companies, but there could be an argument that the second company could not in that circumstance be misled because its directors who were aware of the falsity were not misled and, therefore, the conduct was not misleading. A question arises as to what activities might constitute heing

"involved" in a contravention of Part 1V or Part V of the Act.

In my view it has not been shown that the action should be dismissed against any of the respondents. However, there should stili be determined whether, if the matters alleded against Sent and Forshaw were proved, a prima facle case against them would not have been made out. This statement relates, of course, to the present state of the pleadings. The Statement of Claim does not allege any direct or sufficient participation in the alleged contravention of 8.52. Therefore, the contention in respect of Sent and Forshaw must be that conduct by them or either of them could amount _ to being "involved" within the meaning of s.75B of the Act in a contravention; and, hence, conduct which could amount to aiding, abetting, counselling or

procuring within the meaning of that section. It follows that

crucial to this submission is the meaning of "involved", and the

sub-sections which expand it, in s.75B. The case of Yorke v.

Lucas (supra) is informative upon this topic. In my opinion this authority shows that for Sent and Forshaw to be "involved" it must first be established that they knew of the "essential facts or matters" which constituted the contravention. Accepting as

true for the purpose only of this decision the alleqation in

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acs ne nena te OTe a Oa ORDER DOOR ES FST UT ET UNDUE nL OC OE Tots SOON an SR 90 OO aT CS Oe PS Oe OT Or NT Or

para.17 of the Statement of Claim that Sent and Forshaw knew, when Petres, Westwind and Dipson proposed to enter into the Sales Agreements, untrue representations were to be made and the Agreements would be completed, the first requirement is satisfied

by the pleading. Yorke v. Lucas requires secondlv proof of some

active participation or such an assent to the misconduct as might

Sent and Forshaw were prior to 10 September 1981 directors of Electrum Acceptance, Electrum Finance, Petres, Westwind and, with Wilson, in effective control of those companies and entitled to the assets of those companies and the Schutt Unit Trust. The allegations in the Statement of Claim which, it appears to me, may be examined to determine if there

could be an assertion of some relevant active participation by

(i) Sent and Forshaw at the time the Sales Agreements were entered into knew that there had been representations and that thev were

(i1) They knew that Wilson and then Petres, Westwind and Dipson (as purchasers) were unable to pay their respective shares of the

Lneted bale Dae 4h hae" ee -aceniomen hha cacnieehdendina Dit mee etameneneaetitaaen meine een neadetemeanaataaanemenenatmmenmeeanten a = ee - '

cat cathe at inet en da i te Re ee ee ee es et a deeaee oe.

(iii) At the time the Sales Aqreements were completed Sent and Forshaw knew of the inability to pay referred to in para.(il);

(iv) Sent and Forshaw, at the time of settlement of

In Yorke v. Lucas, Du Cros v. Lambourne (1907) 1 K.B. 40

(Du Cros) was cited to support passive acquiescence as possibly sufficing to constitute aiding and abetting; but, on the facts of Du Cros, the aider and abettor had the capacity to control the principal offender. It involved, of course, a very different set of circumstances to that with which we are concerned: an appeilant, the owner of a motor vehicle, was convicted of driving a motor vehicle at a dangerous speed. Such a conviction, in the view of the Court of Appeal, could be justified because the vehicle was so driven by the "lady seated by his (the appellant's) side". The Court accepted that the appellant must have known the vehicle was being driven at a dangerous speed;

that therefore, as he was the owner and in control of the

J Aerie dine Paoteetaiieg lweraved Vata ndesttatiabnaitin Caiaal Chale remands sna diobeteetallona tiene Sart neten Yenticteahe Ee Te Ak tn

RNS aA kaa ACE ue ON ae sees lterehint ire yi acebaae hor ccars or rrreess eter nn ~ an Le ATTY RT FEE STEN ee nA TT TO Ge hae ee e mais oan

ig! mbes orein taenteee, aw ee ee en te dhe mee nena nee Hal

@ vehicle, this was being done with his approval and consent, that he allowed this to happen when he could and ought to have prevented it. Smithers J. in Dennis v. Pight 11 F.L.R. 458 at

p.462 accepted Du Cros as a case in which there was knowledae and allowance. Smithers J. said, in effect, the "allowance" was constituted by the knowledge; but he was not satisfied that the accused had knowledge that the facts constituting the offence were actually occurring so could not be said to assent to them. In Yorke v. Lucas the trial Judge found that the particular defendant, Lucas, acted in accordance with instructions, that he

conscientiously passed on to the Plaintiff. Yorke, those

pant tee tinh on meals ben ke canntinmnabn seb rmet Newel ileal ee ee ot ae Bee ees heme metsienle ain lita 6

instructions but himself was not aware nor had reason to suspect that the information so relayed was incorrect. in the instant case, in my opinion, the allegations if accepted would not be sufficient to enable the Court to say there was an allowance or

permission by Sent and Forshaw to make. or participate in the

I have set out the allegations in order to consider

whether they could be sufficient to support a finding of

participation. I do not aaqree that e.g. the acceptance of money

as part of the proceeds of the sale of the assets to Jet Corp can

per se be so described or that it may be inferred that accepting payments or receiving money pursuant to the Wilson Aqreements

provides a "nexus" between Sent and Forshaw and the "aiding and

abetting". It follows that in my opinion the Statement of Claim,

so far as it applies to Sent and Forshaw, does not allege facts

PEN RI Y TEE OTT OLR T eT RE ET TY OF AE Fe RE NR ES OG OE RT Se RT HE mr NR rer i . ' ' ay wid ifs

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or allege sufficient facts to entitle the claim against them to succeed. It should therefore, in my opinion, be struck out. I do not accept, however, the arquments that 1t is "incurably bad" or that the action should be dismissed. Jet Corp should therefore be given an opportunity, as it will in the Order I propose, to re-plead. The highest authority preciudes a dismissal of an action (as opposed to the striking out of a pleading) unless the lack of a cause of action is clearly demonstrated. See e.q. per

Barwick C.J. in General Steel Industries Inc. v. Commissioner for

Railways (N.S.W.) (1964) 112 C.L.R. 125 at p.129. The lack of a

cause of action has not been here demonstrated, clearly or at all. Accordingly, this is not an appropriate case, in my opinion, for dismissing the action against Sent and Forshaw. I am conscious that in differing from the learned primary Judas, I am intruding into an area of practice and procedure; vet this trial, with so many groups of respondents, sued on different bases, may be along one. It is easy to envisage circumstances in which, because the Statement of Claim makes a more specific allegation against Sent and Forshaw, cross-examination by their counsel of a witness would be indicated (and be appropriate) days before the presentation of particular aspects of the case against then. It seems to me that it would be an injustice thata hearing should proceed without the pleadings being in order, if indeed the facts or instructions allow addition or amendment before the action starts. The detailed nature of the Statement of Claim suggests it may not be possible to make further assertions

ERT FTN OTTER TIES oe re nin go oa ye cee eer ees TENE : ee

fay 3 te pl antl a ae nn rn ented a nt kn lente alae Laan Etahntsnie nt eee rele anne ane hota

Mr. Chernov, senior counsel for Collier and Hogg, ) submitted in some detail that the Statement of Claim as presentlv

drawn did not disclose a cause of action against his clients. He

put forward a separate argument as to aspects of it which could

be described as embarrassing. In particular, and in respect of

the allegations in paras. 59 and 60, he arqued that the use of

"causing" was, in effect, pleading an allegation of law whereas

in a pleading allegations of fact only were permissible; that no other fact alleged in the Statement of Claim could amount to "causing" either the relevant Agreements to be entered into or

completed or the preparation of the certificates of Touche Ross &

en AI rite Lt PE Ld va Little Adal a ean a anna AS altel MET ttt ions Lane Adee eae de And ean el at ee inward be

Co. He referred to Rubenstein and, 1n particular, the quotation there from Cotton L.J's judgment in Phillips v. Phillips (1878) 4 Q.B.D. 127 at p.139. It may be that Order llr.2(a) is toa similar effect. He made an additional criticism of the use of "causing"; it was an assertion of an ultimate conclusion which might be derived from facts pleaded but was not by itself permissible. I observe that presumably any person faced with the use of such aword in a Statement of Claim would seek particulars of the facts or matters upon which reliance was to be placed for such an alleqation; but perhaps this does not fully answer the criticism. Following a recital of various facts relied upon as constituting the "cause" of a certain event the use of "causing" as a summarizing word would perhaps be more readily acceptable. The word ""caused" or aspects of it is

commonly found in pleadings, e.g. Bullen and Leake and Jacobs'

" PETE TT TTT Ne ET nial een he nenehted Lntmenaineatatantanneienemn ieee antasanetemnna maaiemmtiomenameta ie a as

Precedents of Pleadings 12th ed. p.517-518 offering a precedent

of a Claim for Damages for Breach of Statutory Duty. The paragraph preceding the Particulars is worded -

"The said accident was caused by the breach of statutory duty...."

The precise nature of the statutory dutv is then explored in the rest of the precedent under the heading "Particulars". Then the word "causing" again is used in the Particulars. In the precedent for a Claim for Damages for Fraud on the Sale of Shares (ibid. p.454), one assertion is -

caused to be made the said representations knew them to be false....

SCEPC) En vO S0 SOE TSAIe OES EN DOT DS VON 1 SOT NY PO ea PL AN SNe Tere 7 a

8. The defendants made or caused to be made the said representations in order to induce...,"

(cf. the reference by the editors of 1 Smith's Leading Cases 4th

ed. p.103 (Willes and Keating JJ) to pleadings "adopting 'the

known and understood formulae used for the sake of brevity in

cases of frequent occurrence...."(as quoted in Bullen and Leake

Similar or cognate phrases or words to "caused" are

"occasioned by", "as a result whereof". In Prosser Law_of Torts

4th ed. at p.237 (but under the heading "Causation in Fact"), it

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"The fatal trespass done by Eve was cause of all our woe."

This was, I suggest, an allegation of fact against Eve.

If one accepts that "causing" can be a word which may have a legal or factual implication, in my view, its use in para. 50 in relation to the so-called Sales Agreement representations is, as was intended, to be read as an allegation of fact (or at worst, of mixed law and fact). The facts or Matters on which it relies, not set out in the pleading, are to

be elicited by seeking particulars in answer to a request. If

such particulars provide no further elucidation or state only that the allegations as pleaded are relied on, this can be said to be a mere "begging the question". See per Windeyer J. in The

National Insurance Co. of New Zealand Ltd. v. Espaaqne (1960-1961) 105 C.L.R. 569 at p.590 and his reference to petitio principii.

Or a question of law as to the sufficiency of the assertions

might arise for decision. The same applies to the use of "causing" in para.53 in relation to the Pre-Settlement representations. This paragraph refers to persons including

Collier; the same form 1s adopted in para.54 against Hoqq in relation to Pre-Settlement representations. My view as to the

sufficiency of the allegation against Hogg is the same as for

Collier. I do not agree that the Statement of Claim, so far as

it applies to Collier and Hogg, should be struck out.

through their counsel, Mr. Hargrave, that paras.50 and 53 of the

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Statement of Claim were open to this criticism in relation to the word "causing". My view is accordingly the same as that above. I note that in the case of those respondents the application was only that the paragraph should be struck out and the pleader be given the opportunity to re-plead. It was specifically disavowed that the whole of the proceedings against those persons be struck out; though liability was disputed. I do not agree the Statement of Claim, so far as it applies to Wilson and Huttley, should be

Section 56 of the Federal Court of Australia Act 1976,

"(1) The Court or a Judge may order a plaintiff in a proceeding in the Court or an appellant in an appeal to the Court to give security for the payment of costs that may be awarded against him.

(2) The security shall be of such amount, and Given at such time and in such manner and form, as the Court or Judge directs.

(5) This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the furnishing of security."

Order 28 of the Federal Court Rules is headed "SECURITY

FOR COSTS". Rule 1., so far as relevant, provides -

he Pad Lin Nite rntinn Ln ale Ae ene Settee neal mantel ade aie

(b) references to a respondent extend to any person against whom a claim for relief is made in any proceeding."

"(1) Where, in any proceeding, it appears to the Court on the application of a respondent -

(b) that an applicant 1s suing, not for his own benefit, but for the benefit of some other person and there is reason to believe that the applicant will be unable to pay the costs of the respondent if ordered to do so;

the Court may order that applicant to qive such security as the Court thinks fit for the costs of the respondent of and incidental to the proceeding."

"4. Where the Court orders an applicant to qive security for costs, the security shall be qiven in such manner, at such time, and in such terms cif any), as the Court may by order direct."

"6. This Order does not affect the provisions of any Act of the Commonwealth or of a State or Territory under which the Court may require security for costs to be given."

"The laws of each State or Territory. including the laws relating to procedure, evidence, and the

competency of witnesses, shall, except as otherwise provided by the Constitution or the laws of the

Commonwealth, be binding on all Courts exercising federal jurisdiction in that State or Territorv in all cases to which they are applicable."

es, alana tarwt State eerie ae beacon de atin a tne etn ees ant wallets

Sub-s. 533(1) of the Companies (Victoria) Code reads -

"Where a corporation is plaintiff in anv action or other leqal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his defence, require sufficient security to be given for those costs and stay all proceedings until the security is given."

Whether or not the precise wording of that section is to be applied to the situation here hardly seems important; it is in a form widely to be found in the Commonwealth and its content would appear to be material to be considered in the exercise of any discretion. However, the Full Court of this

Court in Bell Wholesale approved the application of a similar

section in the Companies (Queenstand) Code to proceedings in this Court. The Reasons for Judgment there also indicate that it is appropriate, at least in some circumstances, that persons or entities who may benefit by the result of their litigation should fund the risk of it. Buckley suggests that there should bea predisposition towards ordering security where there 1S an

impecunious plaintiff. See per Street C.J. at p.305.

If there is such a predisposition, it should have greater weight where it has not been shown that the provision of security would prevent or stifle the claim being continued bv the plaintiff; particularly perhaps where at least the indications are (or ait has not been proved to the contrary) as here. the

plaintiff, Jet Corp, wili not be able to pay all costs if any of

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pee Stee at een li tn a a ee Oe snr aoe ha ee cd tp nantes PT rec Core TUr eT an On NUECES SNeNeT NEAT ed

the present respondents are successful. But Ido not find it

necessary to proceed upon the basis that the relevant legislation

The Reasons for Judament recite a most comprehensive

list of the matters with which the learned primarv Judge dealt in

" arriving at the exercise of his discretion. He did not. so far as I can see, indicate that there was any predisposition towards the granting of security; nor did he advert to the notion that

if the person suing was insolvent, then prima facie the defendant

might be entitled to an order for security. Salterqate 1s an

example of a case where this proposition was applied. His Honour

could not have known that Jet Corp has gone into liquidation. We

{ are told that the order in this reqard was made on 4 December q

1983, i.e. after his Honour had aqiven judgment. His Honour was obviously assisted greatly in-the exercise of his discretion by

reference to Co-operative Farmers' & Graziers' Direct Meat Supplv

Ltd. v. Smart (1977) V.R. 386 (Co-operative Farmers'). In that case the plaintiff was a producer society registered under the

provisions of the Co-operation Act 1958. Kaye J. there did not

was subject to s.363 (its terms are the same as s.533 supra) of the Companies Act 1961 but decided it was subject to the general rule as to giving security. He said at p. 387 that the financial position of the plaintiff was:-

| consider it was permissible to infer that a registered society |

PEELE LEP a IN I LLY TEE TT LN SI ET LT EN TE ET LEA RIE AE RP Fe YAY SS RATES RO A

Kaye J. did not accept a submission that the plaintiff should be treated as if it was a foreign insolvent company, nor, as I have said, did he consider it permissible to apply s.363 of the Companies Act. He referred to the rule at common law that poverty of the litigant is not a ground for ordering him to provide security for costs; but also to the exception in the case of an "insolvent person who sues as nominal plaintiff for the benefit of others". Further, Kaye J., in deciding that this exception existed relied upon the case of Rhodes v. Dawson (1886) 16 Q.B.D. 548 (Rhodes) to determine whether the plaintiff against whom a receiving order had been made was merely a nominal plaintiff. He found that a receiver appointed by the Court (as he was in Rhodes) was not an agent or trustee for other secured

creditors at whose suit he was appointed or for the company.

However, the receiver in our case was appointed not by the Court

but by Citicorp, and the litigation commenced after that

appointment and before Jet Corp was in liquidation.

Here the learned primary Judge referred to the rule contended for by counsel that a plaintiff who is without assets but who is suing for the benefit of others may be required to give security. However he was not satisfied that Jet Corp was suing not for its own benefit, but for the benefit of e.g. Citicorp. Yet it seems clear that Jet Corp 1s so suing, at least partly. Thus, he should have taken this into account in the exercise of his discretion. He noted that a plaintiff. by the

appointment of a receiver of his property, is not prevented from

ewan et we bee We lik tee al Ne ate a Sa sen sn lh Sh)

FST en perry rnin errr rere me ce gore a rr pe men ee - - aN et me nae tone st pees ; . : » - - Re

suing in his own right without providing security. He was assisted by Rhodes where Lindley L.J. at pp.553-554 summarised

"The question, therefore, is narrowed to this: if an action is brouqht by a person against whoma receiving order has been made under the Bankruptcy Act, 1883, but who 1s not adjudicated bankrupt, can he be properly ordered to give security for costs?

• The law upon this subject is well summed up in the last edition of Chitty's Archbold, vol.1l, part 5, ch.33, p.398: "The plaintiff will not be compelied to give security for costs merely because he 1s a pauper, or bankrupt, or insolvent, and this even in a qui tam action. And this rule applies where the plaintiff 1s trustee of a bankrupt and is suing for the benefit of the estate: or where the plaintiff is suing as executor for the benefit of the testator's estate." The law relating to receiving orders is contained in ss.5 et seq. of the Bankruptcy Act, 1833; and from them it appears that a receiving order is not equivalent to an adjudication of bankruptcy; it does not divest the Gebtor of his property, nor make him a bankrupt, nor place him under the disabilities of an adjudicated bankrupt."

In Rhodes the circumstances were most unusual. The defendant, Dawson, had entered into a contract with Rush to carry out certain repairs. Rush employed the plaintiff, Rhodes, to do the

work. Afterwards a petition under the Bankruptcy Act 1883 was

presented against Rush and a receiving order made. The

plaintiff, Rhodes, sued the defendant to recover the cost of the work. The defendant ainterpleaded and it was ordered that the

amount in dispute he paid into Court by the defendant. An

interpleader 1ssue was directed by a Master whereby Rush (or his

trustee) should be plaintiff and Rhodes the plaintiff in the action, the defendant. The question to be tried was whether the

sum paid into Court (63 pounds) should be the property of Rhodes

SAT TNT MRE LIFT ET BL OPT EEO REE LU Een SR et eaten Reg re Mee =n

Lindley L.J. said (p.554) that notwithstandinq the receiving order the plaintiff could not be regarded as the mere instrument of some other person. We were told that since the hearing before the learned Judge at first instance, Jet Corp, as

I have mentioned, is in liquidation. In my view, though Kaye ¢.

in Co-operative Farmers' may have been assisted by his reference

to Rhodes and other cases to conclude that the exception, i.e. that security would be ordered where the plaintiff was a "mere shadow", did not apply inthe case before him we are not similarly assisted in considering whether Jet Corp (in liquidation) whose action is supported by Citicorp should give security. Kaye J. also noted that a receiver had been appointed (as there has been of Jet Corp). And he referred to evidence that the assets of the plaintiff (excluding the amounts claimed of the defendant) were sufficrent to satisfy the claims of all secured creditors and the prospects of unsecured creditors being paid their debts depended to a material degree upon the outcome of the action. This was a finding adverse to the submission of counsel for the applicant that in reality the action had been commenced by receivers and managers for the benefit of secured creditors. For myself I do not find that Rhodes has any application here and have derived less assistance from the

Co-operative Farmers' case than did the learned Judge at first

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However, I have similarly found helpful (with respect) the judgment of O'Bryan J. in Ferncroft Pty. Ltd. v. Kew (Supreme Court of Victoria, 22 November 1979 unreported). There are, of course, significant differences in the situation there in that it was not suggested the plaintiff was in any sense a nominal plaintiff. Further, the liquidator of the plaintiff aave evidence that there was enough in hand to meet the defendants' costs anda possibility of receiving further funds before the hearing. There was but one entity with one interest sued (though six partners); whereas here there are numerous respondents or groups of respondents. It is clear from the pleadings that a separate allegation or series of allegations is made against each respondent. Thus it seems inevitable that the various respondents will have to be separately represented and provide

costs for hearing in which their own interest is not dominant.

Further, the application in Ferncroft was brought in reliance upon s$.363(1) equivalent to s.533(1) above of the Companies (Victoria) Code which contains no equivalent to the words in Order 28 +.3(1)(b) as to an applicant suing not for his own benefit. And in Ferncroft the defendants themselves, no doubt to their own advantage, joined third parties, thereby presumably

adding to the length and cost of the hearing. His Honour was of

the view that to order security would operate oppressively

against the plaintiff and hinder it from prosecuting the claim, guite unlike the instant case. Nor was O'Bryan J. concerned with

a situation where, as here, most of the facts and documents

needed to be proved by Jet Corp were within the knowledge and in

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the custody of some or other of the respondents, 1f that bea matter of significance. No doubt these various factors assisted (and if I may say, with respect, properly so) O'Bryan J. to refuse the application. His Honour's statement of principle is

applicable here; but finally I regard the decision in a negative

way as supporting the case for ordering security. The learned

Judge at first instance also was, as earlier mentioned, not satisfied that Jet Corp was suing not for its own but for the benefit of another person, Citicorp; yet it is entirely clear that Jet Corp at least partly is so suing and, I understand, this

These considerations lead me to the conclusion that there could well be an injustice here, viz. that Jet Corp is to be able to sue, without risk to itself, all the groups of

respondents in the one action and asa result the trial of the

issues between it and the respondents will be much longer and therefore more expensive than if the (qroups of) respondents were sued separately. Yet there is, as his Honour found, reason to

believe that Jet Corp will be unable to pay the respondents'

costs if required. Such an inability is, in the words of Megarry

"J.e.a Matter which not only opens the jurisdiction but also provides a substantial factor in the decision whether to exercise it..."

I am of the view that the discretion of the learned

trial Judge who had not the benefit of all the facts to which we

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have been referred, miscarried. We are able and therefore should

My view is that in association with all other factors which the learned Judge detailed, the (what I shall call) impecuniosity of the applicant Jet Corp ina trial where it has sued groups of respondents, thus increasing the costs of any one group where at any one time the hearing 1s not specifically being directed to the particular issues which concern that group,

assumes greater significance. If to that 1s added that Jet Corp is suing at least in part in the interest of Citicorp, and that to order security would not stifle the action, I consider the argument for exercising the discretion in favour of the granting of security is overwhelming. Not to do so would, in the words of the majority in House v. The King (1936) 55 C.L.R. 499 at p.505, effect a "substantial wrong" requiring this Court's intervention. It is no light matter, as that authority shows, to interfere with an exercise of a discretion; still less so when what is being reviewed is a matter of practice and procedure. But, as was said

in Adam _ ?P. Brown Male Fashions Proprietary Limited v. Philip

Morris Incorporated (1981) 148 C.L.R. 170 (Adam P. Brown) at p.177 "the question of injustice flowing from the order appealed will...be a relevant and necessary consideration". Nothing

suggests that the respondents here are litigants "....with a long

purse or a litigious disposition...." (In re the Will of

F.B.Gilbert (dec.) (1946) 46 S.R. (N.S.W.) 318 per Jordan C.J. at

p.323, quoted by the High Court in Adam_P. Brown) who are acting

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The Statement of Claim so far as it applies to Sent and Forshaw be struck out with liberty to Jet Corp to file an amended Statement of Claim against them or either of them within 21 days.

The appeals of all appellant respondents as to the application for security for costs be

Security for the costs of each appellant respondent against whom this claim proceeds be

The matter be remitted toa Judge of this Court to make appropriate orders for security

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each of the appellant respondents in respect of motions on which they were successful;

-sr ify that this and the 4h cscading pages are a true copy of the zasons for Judgment herem of his Honour

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