Weatherall v Satellite Receiving Systems

REASONS FOR JUDGMENT 1 The applicant, Ronald Seaforth Weatherall, is a member of the first respondent, Satellite Receiving Systems (Australia) Pty Ltd ("the Company"). He brings this proceeding against the Company under ss 246AA and 462 of the Corporations Law. 2 Mr Weatherall named as the other respondents in his application Gregory Paul Mullane, Grandos Pty Ltd ("Grandos"), Wilson Wang also known as Wang Wenjun, Compact Pty Ltd ("Compact"), Universal Space Technology Limited ("UST"), and two other companies which may conveniently be referred to as the Queensland company and the Western Australian company. Mr Mullane and Mr Wang are members and directors of the Company. The statement of claim filed with the application shows that Mr Weatherall relies on subpar (a)(i) of s 246AA(1) and on par 461(k) of the Law. 3 Last year, when refusing a motion by Mr Weatherall for general discovery, I remarked on the unsatisfactory pleading in the statement of claim. All of the respondents, save UST, now move for an order dismissing the proceeding under O 20 r 2 of the Federal Court Rules. 4 The evidence received on the hearing of the present motion was quite confined. The respondents tendered only certain statements made by counsel for Mr Weatherall at earlier directions hearings and, in opposition to the motion, there was tendered on behalf of Mr Weatherall simply a proposed amended statement of claim. This last document is significant. When the motion came on for hearing, I raised with counsel the question whether the statement of claim should be struck out and Mr Weatherall should be given an opportunity to replead his case. I was informed by Mr Weatherall's counsel that, if such an order were made, the only amendments his client would wish to make were reflected in this document. Counsel for the respondents accepted with alacrity the task of challenging the adequacy of the amended statement of claim propounded on behalf of Mr Weatherall. 5 The allegations of oppression in the proposed amended statement of claim are set out under two headings as follows: "Breach of Memorandum of Understanding 3. On or about 3 March 1992 the Applicant, Mullane and Wang agreed that the Applicant and Mullane, then being sole equal shareholders in [the Company], would admit Wang as a Third equal shareholder and director with them, in consideration of Wang's investment of $US250,000 in [the Company] ('the share agreement'). 4. By a deed executed in or about March 1992, in execution of the share agreement ('the UST deed'), [UST] agreed with Wang that in consideration of Wang's payment of $US250,000 to UST on account of [the Company], UST would procure the allotment to Wang of one-third of the issued capital of [the Company], and the appointment of Wang as a director of [the Company]. 5. In execution of the UST deed, Wang paid $US150,000 to UST and UST accounted to [the Company] for $US150,000 and procured the allotment to and appointment of Wang. 6. In breach of the share agreement and the UST deed, Wang did not pay the remaining $US100,000 of the $US250,000 required to UST, and UST did not account to [the Company] for that $US100,000, which sum remains due to [the Company]. 6A. As majority shareholders in [the Company] at all material times and as sole directors of [the Company] since 26 February 1995, Mullane and Wang have had power to cause [the Company] to have UST account to [the Company] for that $US100,000, but have failed to do so. Breach of Memorandum of Understanding ('MOU') 7. On 20 March 1992 the Applicant, Mullane and Wang entered into a Memorandum of Understanding ('the MOU'). 8. Each of Mullane and Wang, themselves and by the agency of [the Company] and [Grandos, Compact, the Queensland company and the Western Australian company], has, at all material times since 26 February 1995 or since dates before then of which the Applicant is not yet aware, breached his obligations to the Applicant under the MOU. PARTICULARS Having [the Company] participate in the formation of companies (namely, [the Queensland company and the Western Australian company] and any other companies of which the Applicant is not yet aware) that are not wholly owned subsidiaries of [the Company] and are not formed to undertake specific tasks, contrary to clause 5 of the MOU. Carrying on the 'Satellite Business' and associated projects outside [the Company] without the Applicant's approval, contrary to clause 6 of the MOU. Associating directly and indirectly with businesses that compete with the interests of [the Company], contrary to clause 10 of the MOU. Failing to contribute to the business of [the Company] for 5 years from 2 March 1992, contrary to clause 12(a) of the MOU. Extricating himself from [the Company] without the Applicant's approval, contrary to clause 12(b) of the MOU. Competing with [the Company], contrary to clause 12(b) of the MOU. Not conducting the management of [the Company] by consensus, contrary to clause 14 of the MOU. Incurring liabilities and expenditure of [the Company] without the approval in advance of the Applicant, contrary to clause 14 of the MOU. Using the name 'Satellite Receiving Systems', other than in reference to [the Company], in the names of [the Queensland company and the Western Australian company] and in other instances of which the Applicant is not yet aware, without the Applicant's approval, contrary to clause 16 of the MOU. Denying to the Applicant access to the books and records of [the Company] and its subsidiaries, contrary to clause 13 of the MOU." The proposed amendments are underlined. 6 In addition to a formal declaration of oppression, Mr Weatherall claims in his application two specific orders (presumably under s 246AA(2)) against Mr Mullane and Mr Wang. They are: · an order that, as directors, they provide to him access to the books and records of the Company (para 3), and · an order that, as directors, they cause the Company to require Mr Wang and UST to pay any amounts unpaid on the shares issued to Mr Wang (para 4). In the alternative, an order for the winding up of the Company is sought. 7 Other relief claimed in the application comprises: · an order restraining the respondents, other than the Company, from breaching "the Memorandum of Understanding . . . dated 20 March 1992 ("the MOU")" (para 6), · an order that each of the respondents, other than the Company, disclose "all property of [Mr Weatherall] or [the Company] that is, or has at any time, been in [their] possession, custody or control" (para 7), · damages from "each Respondent for the breaches of the MOU" (para 8), · an inquiry into damages (para 9), and · an account of profits (para 10). 8 The position of one party, UST, is most unsatisfactory. It is named as a respondent in the application and its address is shown as Hong Kong. It has not been served, and leave to serve the originating process upon it has not been sought. As the statements from earlier directions hearing tendered by the other respondents show, I have raised this matter on at least three occasions with Mr Weatherall's legal representatives. In May last year I was told that inquiries indicated that UST had been deregistered in its place of incorporation, the British Virgin Islands, in 1990. Counsel for Mr Weatherall now says that it is not proposed to serve UST and that, if the order for dismissal sought in the present motion is not made, his client will seek leave to discontinue the proceeding against UST. 9 The headings in the statement of claim suggest that Mr Weatherall's oppression suit is founded upon a breach of a single agreement. However, the pleading identifies three agreements - "the share agreement" (para 3), "the UST deed" (para 4) and "the MOU" (para 7). Counsel for the respondents observe that it is not alleged that the Company is a party to any of the agreements or that Mr Weatherall is a party to the UST deed. It is alleged that the share agreement was breached by Mr Wang, the UST deed was breached by UST and the MOU was breached by both Mr Mullane and Mr Wang. 10 The nature of Mr Wang's obligation under the share agreement is alleged to be his "investment" of $US250,000 in the Company (para 3). It is alleged that he became a director of the Company and the holder of one-third of its shares (para 5). The breach alleged against Mr Wang is his failure to pay $US100,000 to UST (para 6). 11 The pleading is vague and imprecise. The word "investment" is not a term of art. It is apt to cover the purchase of shares and the lending of money. Further, there is no statement of the terms upon which the Company's shares were issued to Mr Wang. 12 Bearing in mind that UST may have ceased to exist by 3 March 1992, proof of actual loss or damage suffered by reason of Mr Wang's breach may be difficult. Nonetheless, it may be accepted that any breach of the share agreement by Mr Wang would entitle Mr Weatherall to claim damages from him. But might this particular breach of contract amount to oppression under s 246AA of the Law? 13 The authorities establish that conduct inconsistent with arrangements and understandings between shareholders may be so unfair that it amounts to oppression: Raymond v Cook (1998) 29 ACSR 252 and Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688, 29 ACSR 290 and 30 ACSR 20. However, s 246AA is concerned with the manner in which "affairs" of a company are being conducted and, whilst s 53 of the Law gives an extended definition of "affairs" for the purposes of s 246AA, it cannot be said that Mr Wang's failure to pay UST has anything to do with his position as a director or member of the Company so as to constitute conduct in its "affairs". In my view, such a failure is not "corporation-related": see Raymond v Cook per Pincus and Thomas JJA at 264. 14 The pleaded breach of the UST deed makes even less sense. It is alleged that Mr Wang agreed to pay $US250,000 to UST on account of the Company (para 4) and that Mr Wang paid $US150,000 to UST, which accounted for that sum to the Company (para 5), but Mr Wang did not pay to UST the balance of $US100,000, for which UST did not account to the Company (para 6). 15 UST is not alleged to be a so-called accounting party. Indeed, it is expressly alleged that it has not received the sum for which an account is sought. Nor is there an allegation that UST is a fiduciary of any type. The proposed amendment to the statement of claim (para 6A) is, no doubt, intended to give a corporate flavour to Mr Weatherall's claim for relief under s 246AA. It may be that s 246AA(2)(g) can be utilized "to short circuit" the rule in Foss v Harbottle (1843) 2 Hare 461; 67 ER 189 by ordering an accounting in oppression proceedings: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd 28 ACSR at 737-738. However, not only is there no allegation that UST was any kind of a fiduciary, there is no allegation that it was controlled by Mr Mullane or Mr Wang. The activities of UST, by itself, cannot, therefore, be described as corporation-related so as to be brought within the purview of s 246AA. 16 The statement of claim alleges several breaches of the MOU by Mr Mullane and Mr Wang. However, the pleader has omitted to set out all the terms of that agreement. One is left to guess such terms by reference to the way in which the breaches are pleaded. 17 The statement of claim is plainly and unarguably embarrassing. Its glaring defects are not addressed in any way by the proposed amendments. Counsel for Mr Weatherall points out that, nonetheless, each of the respondents other than UST has filed a defence. 18 The requirements for summary dismissal were recently explained in Dunn v Australian Society of Certified Practising Accountants (1998) 29 ACSR 1, another action under the Corporations Law, where Burchett J said (at 4-5): "The power of the court under O 20 r 2 to dismiss an application summarily is one to be exercised only with great care, and in a very clear case, in accordance with the well known principles laid down by Dixon J in Dey v Victorian Railways Commissioners (1949) 78 CLR 62; [1949] ALR 333 and by Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; [1965] ALR 636. In the earlier case, Dixon J said (at 91-92): The principles upon which that jurisdiction is exercisable are well settled. 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 a jury. The fact that a transaction is intricate may not disentitle the court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action as frivolous and vexatious and an abuse of process. . . . It is in my opinion of more importance to maintain the integrity of the principle that under cover of the inherent jurisdiction to stop abuse of process litigants are not to be deprived of the right to submit real and genuine controversies to the determination of the courts by the due procedure appropriate for the purpose . . . Thus the litigant seeking an order from the court under O 20 r 2 to cut proceedings short bears a heavy onus. Recently, the test was stated as requiring it to be shown that the impugned case is "doomed to fail": Fejo v Northern Territory of Australia [1998] HCA 58 at para 26 per Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ. See also Lonrho Plc v Fayed [1992] 1 AC 448 at 469-470; X (Minors) v Bedfordshire County Council [1995] 2 AC 633 at 693-694, 740; Webster v Lampard (1993) 177 CLR 598 at 602-603; 116 ALR 545; and the discussion in Australian Building Industries Pty Ltd v Stramit Corp Ltd 1 December 1997, Fed C of A, Full Court, unreported. It should be remembered also that the court, instead of simply dismissing an application summarily, may strike it out under O 11 r 6, granting leave, to replead. However, as the High Court (Mason CJ, Brennan and Toohey JJ) stated in Munnings v Australian Government Solicitor (No 2) (1994) 120 ALR 586 at 589: . . . [A]lthough a plaintiff is often granted leave to replead if a statement of claim is struck out, there are some cases where the plaintiff so misconceives the cause of action that the action ought to be brought to an end (for example, Robertson v Commonwealth of Australia, High Court of Australia, 3 September 1985, unreported.) It is trite law that a respondent or defendant who seeks summary judgment on the ground that the statement of claim discloses no reasonable cause of action will do so, in general, as the respondents expressly do here, upon the assumption that all of the facts alleged in the statement of claim are true. Indeed, the applicant is entitled to have the matter put even slightly more in his favour. The right question is "whether it would be open to the plaintiffs upon the pleadings to prove facts at the trial which would constitute a cause of action": The Mutual Life & Citizens' Assurance Co Ltd v Evatt (1970) 122 CLR 628 at 631; [1971] ALR 235, per Lord Diplock delivering the advice (by majority) of the Privy Council; Re Morris; Ex parte Donnelly (No 3) 15 August 1997, Fed C of A, unreported. In West Wiltshire District Council v Garland [1995] Ch 297 at 305, the Court of Appeal accepted a statement of the issue which does not, I think, differ in substance: whether "within the reasonable bounds of the pleading" facts could be proved to support the claim, or whether it "is bound to fail for want of a cause of action". See also the exposition of the law by Millett J in Lonrho Plc v Fayed (No 2) [1992] 1 WLR 1 at 5; and Munnings v Australian Government Solicitor (Nos 1 & 2) (1994) 118 ALR 385 at 388-389; 120 ALR 586 at 588-589." 19 The applicable principles have also been conveniently set out by Kirby J in Lindon v Commonwealth [No 2] (1996) 70 ALJR 541 at 544-545. In that case his Honour explained (at 545-546) how the relief claimed in a proceeding may indicate that a case is bound to fail. The importance of the actual orders sought was demonstrated in this context subsequently in Fejo v Northern Territory (1998) 72 ALJR 1442 at 1449-1450. 20 I am conscious that courts should not take any narrow approach to cases under s 246AA: Edwards v Idaville Pty Ltd (1996) 22 ACSR 1 at 3. The statement of claim in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd illustrates, however, the necessity for each single allegation to be clearly pleaded in order to assess whether the totality may amount to oppression. In the present case counsel for Mr Weatherall has been handicapped in his advocacy by a seeming inability to recognize the faults in his client's pleading. It is simply not to the point that there has been a notional joinder of issue by the filing of defences. The applicant must be assumed to have pleaded his best case. Indeed, that is what counsel expressly claims that Mr Weatherall does in his proposed amended statement of claim. He eschews any other case and adduced no evidence of facts upon which it could be shown that Mr Weatherall might have a case, however slim. 21 It is just possible to perceive in the relief sought in paragraph 4 of the application a complaint that the Company has not sued Mr Wang for unpaid subscription moneys. There is, of course, no pleading to support such a claim. The response of Mr Weatherall's counsel to questions on this topic during his address left me with the distinct impression that he had no idea what the facts were so far as they concerned the terms of issue of any of the Company's shares to Mr Wang. So too with some of the breaches pleaded in paragraph 8 of the statement of claim, it is just possible to speculate that what Mr Weatherall may want to assert is a case of oppression based on the appropriation of a corporate opportunity. However, he has not done so in his pleading, and he has not adduced evidence of any facts which might support such a case. (No separate submissions were put in support of a case for winding up on the just and equitable ground in par 461(k) of the Law.) 22 There is no allegation whatsoever of any fact to support the extraordinary claim for access to the Company's books and records or for the Anton Piller type order for disclosure of property, including not just that of the Company, but that of Mr Weatherall. It is significant that those orders are sought as final relief. Mr Weatherall has not apparently applied for an order under s 247A of the Law or for preliminary discovery. In those circumstances, invoking the jurisdiction of the Court under s 246AA may well constitute an abuse of process in the second sense explained by Powell J in Re Dernacourt Investments Pty Ltd (1990) 20 NSWLR 588 at 619-620. 23 It is the joinder of UST, however, that reveals the very real abuse of process in this proceeding. When one looks past the ineptitude of the pleading, the role of UST seems pivotal. Yet, notwithstanding what Mr Weatherall's counsel says about UST's current status, no attempt has been made to re-cast the statement of claim so as to reflect facts which accord with his instructions. This is not just a case of inconvenient joinder or misjoinder. The application and accompanying statement of claim are a hodgepodge of claims and alleged facts, some of which may just be tenable as causes of action in contract against Mr Mullane or Mr Wang, but which do not, collectively or individually, provide an arguable basis for an oppression suit. 24 Mr Weatherall's main case is one such as that identified by Burchett J in Dunn, that is, it is doomed to fail. He has entirely misconceived the action available under s 246AA of the Law. Moreover, the joinder of other causes of action is, in the circumstances outlined above, an abuse of process. I shall make an order removing UST as a party and the proceeding will be dismissed with costs. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Whitlam.