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Corporations Act - Joinder of parties - Whether separate proceedings required when inconsistent relief sought in originating process

Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821

John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'asia) Pty Ltd (1991) 6 ACSR 63

1 MASTER SANDERSON: By interlocutory process to amend its application, the plaintiff sought the following orders:

"1. The Defendant be designated the First Defendant.

2. The Plaintiff have leave to:

(a) join in this action Leon Phillip Carr, Richard John Thomas and Nigel Charles Purves as Second Defendant, Third Defendant and Fourth Defendant, respectively;

(b) join in this action the following persons as Plaintiffs:

Atkinson Cooper Securities Ltd, Garde Nominees Limited, Castleton Pty Ltd ACN 009 210 664, Fersdon Limited, Aileendonan Investments Pty Ltd ACN 008 682 773, Anthony Low-Beer, Robert Brown and Stanley Brown, Tung Hi Limited, David Hesketh, Robert Allen, Strategysearch Consulting Services Pty Ltd 053 207 088, Neil Macaulay and Janice Macaulay, Colin McCavana, John Udorovic, Kalfax Holdings Pty Ltd ACN 009 143 891 and John Brodziak Pty Ltd ACN 009 275 487;

(c) amend its originating process to claim:

(i) declarations that the conduct of Leon Phillip Carr, Richard John Thomas and Nigel Charles Purves constituted breaches of sections 180 and 181 of the Corporations Act 2001 (Cth), and of common law director's duties, by;

(ii) declarations that the issue of 3,000,000 shares by the First Defendant in or about May 2003 to Glamont Pty Ltd was invalid and void;

(iii) an order that the share registry of the First Defendant be amended to reflect those declarations; and

(iv) amend its Application in accordance with the Minute annexed hereto.

3. The Minute stand as the amended Application.

4. The costs of this application be reserved."

2 The orders sought in the minute of amended application ("the minute") are as follows (the marking up has been omitted and in the context of this application is of no consequence):

"1. Orders pursuant to section 233 of the Corporations Act:

(a) that the First Defendant be wound up.

(b) that pending winding up, orders be made regulating the conduct of the Company's affairs and in particular the conduct of the First Defendant in disposing of its assets.

(c) Alternatively, for the appointment of a Receiver of all of the Company's property for the purpose of calling a meeting of the members of the Company seeking a resolution of shareholders resolving to wind up the affairs of the Company and distribute its assets in specie.

2. Orders pursuant to section 237 of the Corporations Act that the Plaintiff be authorised to institute and prosecute proceedings on behalf of the First Defendant against Leon Phillip Carr, Richard John Thomas and Nigel Charles Purves, directors of the Defendant, for breach of their common law duties as directors and of sections 180 and 181 of the Corporations Act 2001 (Cth);

3. A declaration pursuant to Section 1322.

The issue of 3,000,000 shares by the First Defendant in or about May 2003 to Glamont Pty Ltd was invalid and void.

4. Rectification of the register of members of the First Defendant pursuant to section 175 whereby the issue of 3,000,000 shares in the First Defendant in or about May 2003 to Glamont Pty Ltd is cancelled.

5. Such further or other Order as to this Honourable Court may seem fit.

6. Costs."

3 When the matter first came on for hearing, counsel for the defendant pointed out that orders could not be made in terms of par 2(b) of the amended interlocutory process because no consents by the parties proposed to be joined as plaintiffs had been filed, as is required by O 18 r 6(2) of the Rules of the Supreme Court 1971. As it was obviously appropriate to deal with the question of joinder of plaintiffs before dealing with any other matter, the application was adjourned to allow the proposed plaintiffs to file the necessary consents. On 13 April 2004 an affidavit of Malcolm Patrick Caulfield ("Mr Caulfield"), sworn 8 April 2004 was filed. Annexed to that affidavit were a series of consents from each of the parties mentioned in par 2(b) of the application.

4 At the resumed hearing, counsel for the defendant objected to Mr Caulfield's affidavit. He submitted that the affidavit was inadmissible because it did not verify each of the consents attached to the affidavit as an exhibit. I indicated to the parties that I was prepared to allow the affidavit to stand, that I was satisfied the consents were proper and that I would make an order joining the parties referred to in par 2(b) of the interlocutory process as plaintiffs to the action. I indicated that I would publish brief reasons for that decision. In part, these are those reasons.

5 What is required by O 18 r 6(2) is that the proposed plaintiff consent in writing to be joined as a plaintiff. It is not necessary for such consent to be verified by affidavit. Although the consents appear as annexures to Mr Caulfield's affidavit, they need not be put before the Court in such a form. In my view it would have been sufficient if the consents had simply been filed. Accordingly, whether or not Mr Caulfield's affidavit accords with the rules of Court is of no consequence. Each of the proposed plaintiffs has given their written consent to being joined as a plaintiff and that is sufficient. Accordingly I made the orders sought in par 2(b).

6 Counsel for the defendant also sought an order that the parties joined as plaintiffs should be liable for costs from the instigation of the proceedings, not just from the date of their joinder. Under O 18 r 6 the order for joinder can be made by the Court "... on such terms as it thinks just ...". In my view, in this case it was appropriate that the order be framed so that the newly joined plaintiffs would be liable for any costs awarded against the plaintiff at any stage of the proceedings which relate to the period prior to their being joined as parties. I indicated that the order for joinder would be made on this condition.

7 Counsel for the defendant then raised the question as to whether or not the application ought be amended in terms of the minute. Counsel pointed out that the order sought in par 2 of the minute was inconsistent with orders sought in par 1, 3 and 4. By par 1, the plaintiffs sought to wind up the first defendant on what is generally known as the just and equitable ground. Paragraphs 3 and 4, it was conceded, were consistent with such an application. If the company was to be wound up then it was relevant to know how many shares were on issue for the purposes of any distribution. However, counsel pointed out that by par 2 of the minute the plaintiff sought leave to institute proceedings on behalf of the first defendant against certain-named parties. This, it was submitted, was entirely inconsistent with the idea of a winding-up on the just and equitable grounds. After all, if an order was made winding-up the company in these proceedings, an order could not be made authorising the company to take proceedings against its former directors. That would be a matter for the liquidator. Counsel for the first defendant submitted that accordingly, leave to amend in terms of par 2 should be refused and the plaintiff should be left to proceed in a separate action.

8 It is the case that there is an inconsistency between par 1, 3 and 4 and par 2 of the minute. At the very least, par 2 ought be relief sought in the alternative. But the fact remains that it is difficult to see how in practice the matters raised in par 2 could be considered at the same time as the matters raised in par 1, 3 and 4 of the minute. The difficulties are manifest. The question is whether or not, in the circumstances, separate proceedings should be initiated.

9 While I appreciate the strength of the argument put on behalf of the first defendant, I am satisfied that leave to amend in terms of the minute ought be granted. It is important to note that the Corporations Rules anticipate the issue of only two different types of application - an originating process and an interlocutory process. The rules do not anticipate pleadings. What the originating process is intended to do is raise all of the issues between the parties in relation to the Corporations Act. That is what has been done in the minute. It may be, in the course of dealing with that application, the issues raised by par 1, 3 and 4 will have to be dealt with before the issues raised by par 2 of the minute - or vice versa. But that is simply a matter of programming the application as a whole. In my view, given the scheme of the Corporations Rules, there is no warrant for requiring separate applications even when the orders sought in the originating process are inconsistent.

10 Accordingly I am prepared to allow an amendment in terms of the minute, provided that the orders sought in par 2 are sought in the alternative. This may require some reworking of the minute.

11 I will hear the parties as to the precise form of orders and as to costs.