Rochester Communications Group Pty Ltd & Ors v Rodney Stephen Adler & Ors [1997] FCA 62 (24 January 1997)

CATCHWORDS

Pleadings - amendment of pleadings - particulars in pleadings - joinder of parties under Federal Court Rules - discretion to allow parties to replead a case.

Trade Practices Commission v. Australian Iron and Steel Pty Limited (1989) 22 FCR 305

Cohen v. McWilliam (1995) 38 NSWLR 476

State of Queensland v. J L Holdings Pty Limited Unreported, 14 January 1997, High Court of Australia.

THE ROCHESTER COMMUNICATIONS GROUP PTY LIMITED & ORS v. RODNEY STEPHEN ADLER AND ORS

No. NG 199 of 1996

Coram: Beaumont J

Place: Sydney

Date: 24 January 1997

IN THE FEDERAL COURT OF AUSTRALIA )

)

NEW SOUTH WALES DISTRICT REGISTRY ) NG 199 of 1996

)

GENERAL DIVISION )

BETWEEN: THE ROCHESTER COMMUNICATIONS GROUP PTY LIMITED & ORS

Applicants

AND: RODNEY STEPHEN ADLER & ORS

Respondents

Coram: Beaumont J

Date: 24 January 1997

ORDERS

THE COURT ORDERS:

1. The third amended application and the fourth amended statement of claim be struck out as against the third, twelfth and thirteenth respondents;

2. That:

(a) paragraphs 13I and 13K of the fourth amended statement of claim be struck out; and

(b) paragraph 11 of the third amended application be struck out against the first respondent.

3. That liberty be reserved for the applicants to apply to the Court within 28 days from today for leave to further amend their Statement of Claim on production of such affidavit or affidavits as support the general statements made in the Statement of Claim.

4. Costs are reserved.

IN THE FEDERAL COURT OF AUSTRALIA )

)

NEW SOUTH WALES DISTRICT REGISTRY ) NG 199 of 1996

)

GENERAL DIVISION )

BETWEEN: THE ROCHESTER COMMUNICATIONS GROUP PTY LIMITED & ORS

Applicants

AND: RODNEY STEPHEN ADLER & ORS

Respondents

Coram: Beaumont J

Date: 24 January 1997

REASONS FOR JUDGMENT

INTRODUCTION

Before the Court is a notice of motion by some respondents in complex litigation between several applicants and several respondents in which a number of causes of action have been pleaded. The matter has been before the Court on not a few occasions in which the respondents have raised, by way of complaint, objections to jurisdictional aspects of the claims made, pleading problems and lack of particularity. The stage has now been reached where the applicants have filed their third amended application (the "Application") and their fourth amended statement of claim (the "Statement of Claim").

It appears that the primary claim relied now upon by the applicants is an application that one of the respondents be wound up under the provisions of the Corporations Law (the "Law"); or alternatively, that there be a compulsory acquisition of shares in that company under the provisions of s.260 of the Law; or, alternatively, that the company be wound up under 461(k) of the Law on the "just and equitable" ground.

Although the point has not been relied upon on behalf of the respondents, it has become obvious from the already complicated history of this litigation that one of the difficulties confronting the parties, and the Court, arises from the decision of the applicants to incorporate in the proceedings not only a claim for winding up on the just and equitable ground, but also what would have been described in earlier terms as an oppression suit, together with a string of other claims alleging misleading or deceptive or unconscionable conduct under the Trade Practices Act 1974 or the Fair Trading Act 1987 (NSW).

A contested application to wind up a company on just and equitable grounds and an oppression suit is complex litigation by any standard. When there is superadded to litigation of that complexity a series of allegations of facts, complex in themselves, made in the context of many interrelated claims of false or misleading or unconscionable conduct against a number of respondents who are said to have acted in individual and various representative capacities, we have a chemistry which perhaps inevitably leads to the complications that have arisen in this litigation already on three or four occasions, despite the case being in only its first year of existence.

The Court has a duty to manage the case, but only in the interests of securing justice in a way that is fair between the parties. It may be noted that, in earlier times, the complications to which I have referred probably would not have arisen. The traditional view was that an oppression suit could not be used as a remedy for past injustices; see Wallace and Young Australian Company Law and Practice 1965 at 566. The modern law has taken a more liberal view; see Ford's Principles of Corporations Law 1996 at para. 11.445.

Under the earlier approach, as a matter of principle, it was not desirable to tack on to an oppression suit a series of disparate common law or equitable causes of action. One consequence of the modern liberal approach to the scope of the oppression remedy is that, by permitting a review of past conduct, it is probably no longer wrong to add common law or equitable claims to either an oppression suit or a claim for an order for winding up on the just and equitable ground. In any event, as I have said, the respondents, who have taken many points in this matter, with some justification, do not take that point. I raise it for the parties' consideration, because in the discharge of the Court's responsibility to manage the litigation, at an appropriate stage consideration will need to be given to the question whether it is desirable to isolate some matters and determine them as preliminary points, or perhaps, as separate questions. I have not heard argument on this point and, of course, will express no view upon it. Indeed, I do not have a view. But one possible approach would be to hear the oppression suit or the "just and equitable" winding up claim in the first instance, and to defer the hearing of the other claims to a later stage. I appreciate that any division of the proceedings carries with it some disadvantages, in particular, possible complications in terms of appeal rights, but I agree with the comments made in the final Woolf Report (p.232) that in complex litigation a judge and the parties should always address the possibility of ordering the determination of a separate question.

THE RELIEF SOUGHT IN THE MOTION

The applicant seeks relief as follows:

"1. That the third amended application and the fourth amended statement of claim be struck out as against the third, twelfth and thirteenth respondents;

2. That:

(a) paragraphs 13I and 13K of the fourth amended statement of claim be struck out; and

(b) paragraph 11 of the third amended application be struck out against the first respondent."

Paragraphs 13I and 13K of the Statement of Claim and paragraph 11 of the application are in these terms:

"13I. Adler as a director, or executive officer of FAI has by conduct contravened Section 232 of the Corporations Law.

Particulars:

(a) The conduct of Adler referred to in Paragraphs 28, 30 35 and 13D is conduct using Adler's position in FAI together with the conduct of Adler as a director or executive officer of FAI and using his position as such or improperly using information acquired thereby in approving or acquiescing in the conduct of FAI referred to in Paragraph 13D;

(b) The aforesaid conduct was conduct to cause detriment to FAI and thereby in contravention of Sub Sections 232(5) and 232 (6) of the Corporations Law;

(c) The aforesaid conduct was conduct by Adler using his position in FAI or improperly using information acquired thereby to gain directly or indirectly an advantage for himself and for the Adler Family and thereby in contravention of Sub Section 232(5) and 232(6) of the Corporations Law;

(d) Klein is a shareholder in FAI."

"13K. The conduct of Adler described in Paragraph 13I herein is conduct as a director or executive officer of FAI in contravention of Section 232 of the Corporations Law and satisfies the requirements of Section 230 of the Corporations Law and orders are sought against Adler in accordance with Paragraph 11 of the Amended Application filed herein."

Paragraph 11 of the amended application:

"An order pursuant to Section 230 of the Corporations Law that Adler Shand Roxanne Adler and Ethel Adler be prohibited for such period as the Court determines from managing any corporation."

CONCLUSIONS ON THE MOTION

(a) Paragraphs 49(c) and (e) of the Statement of Claim

It is submitted on behalf of the respondents that, when the relevant parts of the pleading are read as a whole, it appears that material facts have not been pleaded to show how FAI, as distinct from the members of the Adler family, engaged in the misleading or deceptive conduct alleged. Reference was made by Senior Counsel for the respondents to the particulars relied on which are said to be constituted by a letter dated 10 April 1991 from FAI to Klein. But it is submitted that, so far as FAI is concerned, there is nothing misleading or deceptive in that letter in the terms of the allegations made in paras. (d) and (e) of para. 49.

In my view there is force in this submission. As will be seen from a reading of the paragraphs of the Statement of Claim, it is, at the least, not clear, (especially when account is taken of particular (c) of para. 49) whether it is actually claimed that in each of the respects alleged, Mr Adler was acting on behalf of FAI (cf. Yorke v. Lucas [1985] HCA 65; (1985) 158 CLR 661 at 667). One of the features that has emerged in the pleading of the applicants' case is the circumstance that one of the principal respondents, Mr Adler, is apparently said to have acted in various capacities in the transactions now challenged. Inevitably, this has the potential, now unfortunately fulfilled, to generate complexity.

If it is the case that Mr Adler is said to have acted in that connection for himself, for particular members of his family, or for particular members of the corporate group with which he was involved, that should be pleaded specifically, and clearly, and with full particulars. Moreover, it should be made clear whether in the case of FAI, or for that matter any other party, the liability of FAI which is alleged to arise in the particular context is a primary or secondary liability, whether it is an original or vicarious liability, and whether any specific statutory position has any particular operation which, in effect, attributes a vicarious or similar liability to the party. Such important matters must not be left to conjecture.

I should note that on behalf of the applicants, an offer was made by their Senior Counsel to supply further and better particulars of any such matters. However, whatever form the provision of that information takes, and I would myself favour its inclusion in the pleading rather than in particulars in the form of correspondence as a matter of convenience for all concerned, the present question is, as I see it, one of substance. See, for example, by way of comparison, the approach adopted by Cole JA. in Piccardi & Anor v. Caldekia Pty Limited unreported, 23 September 1996, NSW Court of Appeal at p.11.

In Trade Practices Commission v. Australian Iron and Steel Pty Limited (1989) 22 FCR 305, Lockhart J. said (at 323):

"[The Statement of Claim] fails to plead material facts, it contains confusing and irrelevant material, it uses ambiguous terms, pleads particulars rather than material facts and asserts conclusions or opinions. Certain of the matters are perfectly well pleaded, but the defective parts are so inextricably intertwined with offending material that an oppressive burden is cast upon the respondents to spell out the alleged cause or causes of action. The whole pleading must be struck out: cf. Coe v The Commonwealth [1979] HCA 68; (1979) 53 ALJR 403 at 409, per Jacobs J..

The Commission ought to have an opportunity to replead the case which is left by further amending the statement of claim. Leave to file any further amended statement of claim ought not to be granted, however, except on terms that the proposed amendments be verified by affidavit which should satisfy the Court there really are facts which can probably be proved and which, if proved, would support the general statements made in the statement of claim. This is a similar course to the one taken by the Court of Appeal in England in Salaman v Secretary of State for India [1906] 1 KB 613, though it does not impose as high a threshold as was imposed in that case, and is in my opinion the appropriate course to take here, especially in view of the history of this matter and the number of attempts thus far by the Commission to properly formulate its case." (Emphasis added).

In my view, those comments are, in general, applicable to the parts of the Statement of Claim now challenged. I propose, in due course, to take a similar course here, but before doing so, I will go to the other alleged difficulties that are raised by the respondents. I will return later to deal with a submission put on behalf of the respondents, that, given the history of the matter, the applicants should be afforded no further opportunity to replead.

(b) Paragraphs 13D and 13E of the Statement of Claim

The second problem raised by the respondents is similar in principle to the claim made under s.52 of the Trade Practices Act against FAI. The present difficulty arises from the allegation in para. 13D of the Statement of Claim which alleges that several of the respondents, including FAI, have engaged in unconscionable conduct in contravention of s.51AA of the Trade Practices Act.

On behalf of the applicants reference is made to para.13E of the Statement of Claim which is in these terms:

"13E. The conduct of Adler, on his own behalf and on behalf of Lader, the Adler Family and FAI, and on behalf of FAI was unconscionable."

In the course of argument, Senior Counsel for the applicants submitted that this allegation should be read in the light of the allegations of fact made in para. 56 and following of the Statement of Claim. Again it will not be possible to attempt to summarise those paragraphs. It may be noted that in those paragraphs there are allegations of conduct and the entry into transactions which are said to constitute the unconscionable conduct. But again this part of the pleading suffers from the same vice, in my view, as the first problem to which I adverted. That is to say, it is not made clear how FAI, as distinct from Mr Adler, is said to be liable for the unconscionable conduct alleged to have been engaged in by Mr Adler. Again, on behalf of the applicants, further particulars are offered, but once more, I am of the view that it is appropriate to follow the Australian Iron and Steel approach and I propose to do so. Again I will return to this problem before making a decision.

(c) The joinder of the twelfth and thirteenth respondents

The third difficulty raised is advanced on behalf of the twelfth and thirteenth respondents who are the receivers appointed as a result of an alleged default under a mortgage of shares and units in a unit trust. There is no allegation in the pleading to suggest that these receivers have themselves engaged in any unlawful or improper conduct, nor is it suggested that there is a threat that they will enforce the security. In the course of argument it emerged that a decision was made on behalf of the applicants to join the receivers really as consequential parties and not as parties against whom any primary relief is sought.

The question of parties, in terms of their necessary joinder under the Federal Court Rules, was considered recently by the Full Court in News Limited v. ARL [1996] FCA 1256; (1996) 139 ALR 193 at 297 to 299. I should say at once that it is not suggested on behalf of the respondents, nor do I suggest that in the event that it be shown that the applicants are entitled to relief in the principal proceedings, that those proceedings should fail for want of joinder of the receivers as necessary parties.

When it was put to Senior Counsel for the applicants that there did not appear to be any attack made on the mortgage in the Statement of Claim, Senior Counsel for the applicants said:

"MR ROTHMAN: Your Honour, we would in the orders sought ultimately seek damages as against FAI for sums greater than that which is owed under the mortgage and so therefore in that sense we do not challenge the charge in these proceedings subject to what may happen to the Industrial Court proceedings and whether they are joined but we do not challenge the charge in these proceedings as such. What we do say is that the money is not owing.

HIS HONOUR: You say you have a set-off?

MR ROTHMAN: Yes, your Honour.

HIS HONOUR: Or you hope to have a set-off.

MR ROTHMAN: Yes, your Honour, we say we have a set-off.

HIS HONOUR: All right. There is no order of the Court at this point of time.

MR ROTHMAN: No, your Honour, no.

HIS HONOUR: You have claim...

MR ROTHMAN: Yes, your Honour. That is the only challenge that we make to the charge.

HIS HONOUR: Have you pleaded that case though? I do not think you have.

MR ROTHMAN: Well, your Honour, it really arises in the cross- claim that my learned friends have filed and the defence to that which has not yet been filed."

In my opinion it is not necessary, at this stage, to express a view on the substantive merit or otherwise of the point sought to be agitated by Mr Rothman, as that is a matter between FAI and the applicants. For present purposes it is clear that neither the twelfth nor the thirteenth respondents as receivers, has any involvement in any such cause of action claimed. On that footing I propose to order that the twelfth and thirteenth respondents be dismissed from the proceeding.

(d) Paragraph 13I of the Statement of Claim

The fourth difficulty raised on behalf of the respondents concerns alleged contraventions of s.230 and s.232 of the Law. Relevantly, s.230 provides that in certain circumstances the Court may by order prohibit a person from managing a corporation. I will not attempt to summarise the provisions of s.230(1) but one of the ingredients of which the Court must be satisfied is that the relevant officer of a body corporate has, and I quote: "repeatedly breached relevant legislation".

In para. 13I of the Statement of Claim above, there is an allegation that Mr Adler had contravened s.232 of the Law. Two complaints are made in this connection.

First it is said that the elements of s.232 itself are not properly pleaded in para 13I. It is accepted on behalf of the respondents that this pleading, when read with paragraph 13K of the Statement of Claim and paragraph 11 of the application, as previously set out, is perhaps a broad statement to the effect that Mr Adler has improperly used his position as a director and obtained a benefit for himself or other persons or to cause detriment to FAI, but that no meaningful particulars of those allegations are provided in the pleading.

On 12 September 1996 the solicitors for the respondents wrote to the solicitors for the applicants seeking further particulars of the repeated breaches alleged against Mr Adler, and this is a second aspect of the complaint. In my opinion, those particulars ought to be provided and it is fair to say that as I followed Mr Rothman's submissions, there was no real opposition to the provision of that material. Again, I am of the view that such information should be specifically part of the formal pleading rather than located in collateral correspondence between solicitors. As I said earlier, the form in which the information is provided is not crucial, but convenience indicates that it should be part of the pleading.

(e) Liberty to replead?

I come now to deal with the point foreshadowed earlier as part of the submissions advanced on behalf of the respondents, that is to say, that on the assumption that a part of the pleading is struck out, there should be no liberty or possibility reserved to the applicants to replead. In this connection, reliance is placed upon the general history of the litigation, some of which I have already mentioned, but also upon the extensive correspondence passing between the solicitors referred to in the affidavit of Michael Charles Quinlan, sworn 15 January 1997. Again it is not practicable that I attempt to summarise that voluminous material. It does, however, show that particulars have been requested by the respondents on many occasions from as early as April of 1996, and that as early as 30 May 1996 the solicitors for the respondents complained that the contraventions of s.52 of the Trade Practices Act had not been properly pleaded.

Further complaints were made by the respondents' solicitors in September, October, November and December of 1996. I bear that history in mind and then come to the question of the exercise of my discretion. In State of Queensland v. J L Holdings Pty Limited, 14 January 1997, unreported, the High Court of Australia, Dawson, Gaudron and McHugh JJ. said (at p.6):

"Justice is the paramount consideration in determining an application such as the one in question. Save in so far as costs may be awarded against the party seeking the amendment, such an application is not the occasion for the punishment of a party for its mistake or for its delay in making the application. Case management, involving as it does the efficiency of the procedures of the court, was in this case a relevant consideration. But it should not have been allowed to prevail over the injustice of shutting the applicants out from raising an arguable defence, thus precluding the determination of an issue between the parties."

See also, for example, Davies v. Pagett (1986) 10 FCR 226 at 231-3 and see further Cohen v. McWilliam (1995) 38 NSWLR 476 per Priestley JA at 478 to 482 per Sheller JA at 490 to 492.

It is true that in Cohen v. McWilliam at 502-3, Cole JA took a different view, but for present purposes the position must be taken to have been authoritatively stated by Dawson, Gaudron and McHugh JJ. in J L Holdings in the passage I have cited. In that case a similar approach was taken by Kirby J. where his Honour said at pages 25-6:

"...the length of time that the proceedings have been pending before the application is made will often be a relevant consideration. The longer the time, the more reasonable it may be to expect that the parties, or their lawyers, should have earlier appreciated, and raised the point in issue."

Kirby J went on to say at 26-7:

"Courts are entitled to react unfavourably to repeated default on the part of a litigant whose conduct has the effect of frustrating a proper timetable fixed for the trial. Justice will not necessarily require that a party should have multiple opportunities to plead and present its case. A court must accord justice to the particular litigant. But it must also maintain its responsible use of scarce public resources and consider, in a general way, the impact which its orders have on other litigants and on the public generally."

Although Kirby J there observed that justice will not necessarily require that a party should have multiple opportunities to plead and present its case, and cited in that connection the observations of Cole J. in Cohen v. McWilliam at 502, I do not understand the reasons of Kirby J. to actually endorse the approach of Cole J. in Cohen v. McWilliam.

To the contrary, as I have indicated, my reading of Kirby J.'s reasons suggests that his Honour took a similar approach to that adopted by the majority of the High Court in J L Holdings and to that taken by the Full Federal Court in Davies v. Paggett and also to that taken by the majority in Cohen v. McWilliam.

One can appreciate of course that a party has no right to multiple opportunities to plead and present a case. Any amendment permitted hereafter is a matter plainly of discretion and in the exercise of that discretion, justice is the paramount consideration. One can also appreciate that the exercise of multiple opportunities to amend could amount to an abuse of process but in this case, as in J L Holdings, the question has arisen, as Kirby J. noted, at a reasonably early time in the history of the litigation. It may be another matter entirely if an amendment were to be sought during the course of the trial itself.

I therefore reject the submission advanced on behalf of the respondents that I should refuse any further leave to replead. At the same time, as I have already indicated, I propose to impose, upon the grant of any further leave to amend, a condition of the kind imposed in Australian Iron and Steel.

(f) Orders

I therefore make orders in accordance with paragraphs 1 and 2 of the notice of motion as amended, but I reserve liberty to the applicants to apply to the Court within 28 days from today for leave to further amend their Statement of Claim on production of such affidavit or affidavits as show that there really are facts which can probably be proved and which, if proved, would support the general statements made in the Statement of Claim. I reserve costs.

I certify that this and the preceding fourteen (14) pages are a true copy of the reasons for judgment herein of the Hon. Justice B.A. Beaumont

Associate :

Date : February 1997

Counsel and Solicitors for Mr S Rothman SC instructed by

the applicants: Blessington Judd

Counsel and Solicitors for the first, Mr T Bathurst QC and Mr Parker

third, twelfth and thirteen respondents: instructed by Allen Allen & Hemsley

Date of hearing: 16 January 1997