Supreme Court New South Wales

• Medium Neutral Citation: McLaughlin v Dungowan Manly Pty Ltd (No 2) [2011] NSWSC 384
• Hearing dates: 28 April 2011
• Decision date: 10 May 2011
• Jurisdiction: Equity Division
• Before: Pembroke J

Decision

See paragraphs [33] and [34]

• Catchwords: JUDGMENT - application to set aside - exceptional power to re-open - principles - Sections 56 and 90 Civil Procedure Act - additional dimensions - further hearing
• Legislation Cited: Civil Procedure Act 2005; Corporations Act 2001; Uniform Civil Procedure Rules 2005
• Cases Cited: Aktas v Westpac Banking Corporation Ltd (No 2) [2010] HCA 47; Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300; Holmes Court v Papaconstuntinos [2011] NSWCA 59; Newmont Yandal Operations Pty Limited v The J Aron Corporation & The Goldman Sachs Group Inc & Ors (2007) 70 NSWLR 411
• Category: Procedural and other rulings
• Parties: Patrick David McLaughlin - first plaintiff; Jennifer Therese McLaughlin - second plaintiff; Dungowan Manly Pty Ltd - first defendant; Rodney Mark Garratt - second defendant; Max Humphreys - third defendant; Peter William Brown - fourth defendant
• Representation: Counsel: S J Burchett - for the plaintiffs; D A Priestley - for the defendant; Solicitors: Turner Freeman - for the plaintiffs; Pike Pike & Fenwick - for the defendants
• File Number(s): 2010/74510

Judgment

Introduction

1 The plaintiffs are not satisfied with my decision in this proceeding: [2011] NSWSC 215. They now seek to set it aside pursuant to Rules 36.16 and 36.17. Before explaining why I have concluded that I should accede to the application in part, I should provide a brief insight into the circumstances which immediately preceded this proceeding and the contentious litigious history which has led to the current position.

This Proceeding

2 The summons in this proceeding was filed on 10 February 2011. It resulted directly from the implosion of an appeal in the Court of Appeal in which the plaintiffs were the respondent and the first defendant (the Company) was the appellant: No 74510 of 2010. The appeal was from a decision of Ward J: [2010] NSWSC 187.

3 Dates had been fixed for the hearing of the Company's appeal but on 7 February 2011 those dates were vacated by the President. He did so because the plaintiffs contended that the appeal had been resolved. And because they had filed a notice of motion in the Court of Appeal seeking to challenge the retainer of the Company's solicitors. The supposed dismissal of the appeal, and the challenge to the retainer of the Company's solicitors, were manifestations of an underlying controversy which required resolution before the appeal could proceed, if at all. The resolution of this controversy was referred to me as the Expedition Judge for urgent hearing.

4 To facilitate the resolution, the plaintiffs commenced these proceedings. In accordance with the rules and practices of the court, they framed the controversy by reference to the claims for relief which they sought in their summons. The claims for relief identified the legal rights and entitlements for which the plaintiffs contended and which it was my primary duty to accept or reject. Thus, by their summons, the plaintiffs sought the following principal declarations and orders:

1 A declaration that there are not and have not been since such date as the Court may determine any members of Dungowan Manly Pty Ltd (CAN 003 175 003) (the Company) or persons entitled to notice or to vote at any meetings of the Company other than the plaintiffs and Beacon Properties Pty Ltd.

2 A declaration that the plaintiffs are and have been since 6 January 2011 the duly appointed directors of the Company.

3 An order restraining the second to fourth defendants from representing that they are the directors of the Company and from purporting to act as such.

5 The underlying controversy that gave rise to these claims for relief was conceptually straightforward. A number of share surrender agreements were entered into between the Company and its shareholders - other than the plaintiffs and one other, namely Beacon Properties Pty Ltd. The plaintiffs contended that on the proper construction of those agreements, and having regard to all necessary implications, or because of the effect of the Corporations Act, Chapter 2J, the shareholders who had entered into and completed their agreements ceased to be shareholders in the Company and were no longer entitled to notice or to vote at meetings of the Company. That left only the plaintiffs and Beacon Properties Pty Ltd. As the latter has played no role and exhibited no interest in the affairs of the Company, the plaintiffs were, according to their contentions, the only persons in effective practical control of the Company. Hence they purported to procure the dismissal of the Company's appeal from the judgment of Ward J and challenged the retainer of the Company's solicitors.

6 I explained this background in my principal judgment as follows:

3 The plaintiffs contend that the effect of the share surrender agreements is that all rights of each shareholder who entered into such an agreement were immediately extinguished on completion. That is said to be because, upon completion, each such shareholder surrendered its shares, took in lieu a transfer of the strata unit to which it was entitled and paid all moneys due by it to the Company, save for any residual liability that may subsequently arise pursuant to Clauses 7 and 8.

4 On this basis, the plaintiffs contended that they and Beacon Properties Pty Ltd are the only remaining shareholders and the only remaining persons entitled to notice or to vote at meetings of the Company. Apparently fortified by advice to this effect, the plaintiffs moved boldly in December 2010 to stop the appeal by the Company against the judgment of Ward J in their favour. They requisitioned an extraordinary general meeting of the Company, gave notice to the only other shareholder to whom, they contended, notice was required, namely Beacon Properties Pty Ltd, and caused a series of resolutions to be passed by the Company in general meeting on 6 January 2011.

5 Those resolutions were principally to the effect that all persons purporting to act as directors of the Company were recognised as having ceased to hold office and (for more abundant caution) were removed; the plaintiffs were appointed as directors of the Company in place of the then named directors; and the new directors were authorised on the Company's behalf to take steps to dismiss the appeal. On 21 January 2011, the plaintiffs, purporting to act as the sole directors of the Company, terminated the retainer of the Company's solicitor, appointed their own solicitor in his place, and instructed the new solicitor to consent on behalf of the Company to the dismissal of the appeal.

7 I should add that, by their summons, the plaintiffs also claimed further relief which was described as being "In the alternative or in addition". In reality it is no more than ancillary or consequential relief that is contingent on the grant of the declarations sought in the principal claims for relief.

Statement of Claim

8 On 15 February 2011, a direction was made for pleadings. On 18 February the plaintiffs filed a statement of claim. It contained the same principal claims for relief and some minor expansion of the claims for consequential relief. The pleaded allegations were a mix of allegations of fact and law. They dealt with the question of construction and implication in relation to the share surrender agreements that I have mentioned, as well as the question of the application of the Corporations Act.

9 In particular, paragraph 6(e) alleged that, pursuant to the share surrender agreements it was agreed that:

6(e) by implication of fact or law from those express terms:

i) the shareholder would not after completion claim to retain or exercise any right to the shares or right, qualification or office arising from the surrendered shareholding.

ii) the Company would upon completion register and do any and all other things required to effect the lawful transfer, surrender and cancellation of the shares.

10 Further, by paragraph 7 it was alleged that:

7(a) Each of the SSAs constituted an agreement, whereby the Company agreed to buy-back shares in itself within the meaning of s257H of the Act.

(b) Consequently by s257H, since at least July 2010:

i) all rights attaching to shares in the Company other than the shares of the plaintiffs and Beacon Properties Pty Ltd were suspended.

ii) the shareholders party to the SSAs, including 2 nd -4 th defendants, Ms O'Sullivan and Mr Dunn, were not entitled to be directors of the Company, to notice of any meeting of the Company or to vote at any meeting of the Company.

11 Paragraph 8 then set out the consequences which were said to follow if the contentions in paragraph 6 or 7 were upheld. In particular, paragraph 8(d) alleged that:

8(d) the (former) shareholders, parties to the SSAs:

i) ceased to be shareholders of the Company, or

ii) alternatively, became bare trustees of the shares, in respect of which any further step was required to determine their shareholding pending the taking of that step, and,

iii) as such were not entitled to exercise any right under those shares, to be directors of the Company, to receive notice of any meeting of the Company or to vote at any meeting of the Company.

12 In addition to those matters however, the pleaded allegations in the statement of claim included references to representations, fiduciary duties, breaches of the articles of association and the Corporations Act, improper or collateral purposes, persons being knowingly concerned in contraventions by the Company, estoppel, election, oppression and standing. On analysis, it was clear, that with some exceptions, all of these matters depended on the resolution of the principal claims for relief. In other words, if I upheld the plaintiffs' contentions in relation to the construction of the share surrender agreements or the application of the Corporations Act, it would follow, to take just one example, that the defendants were obliged to cause an entry to be made in the Company's register of members of the transfer and/or surrender of shares and to notify ASIC of the change of membership. It would also follow that the defendants were in breach of their fiduciary and statutory duties in not doing so.

13 One of the exceptions was the oppression claim which I explained and discussed in paragraph [47] - [56] of my principal judgment. I will not revisit it. The other exception is the claim based on representation and estoppel set out in paragraphs 10-12 of the statement of claim. In the scheme of things however, this seems to add nothing of substance. In fact it was not dealt with at all in the plaintiffs' careful written submissions at the hearing before me. Nor was I taken to any particular "correspondence" referred to in the particulars to paragraph 10. And no evidence was given of the reliance on which paragraph 11 depended. In the context of the urgent hearing that I conducted, it fell by the wayside. The parties did not address it. Nor did I. And it could not succeed in the absence of reliance evidence.

Written Submissions

14 This leads me to the plaintiffs' written submissions at the hearing before me on 2 March. They were divided into three sections headed "Effect of Share Surrender Agreements", "Duty to Register" and "Replacement of Directors".

15 The first section was the most extensive. It was directed to explaining and supporting the plaintiffs' submission that the effect of the share surrender agreements was to "evince an intention to end the relationship of shareholder and Company as of the completion date" (paragraph 1). This was repeated, restated, reformulated and emphasised in the ensuing paragraphs 2-12. The legal basis for the submission was construction, implication and the effect of the Corporations Act. Reliance was also placed on general principles of company law.

16 The second section set out the plaintiffs' submissions as to why the Company was obliged to register transfers of the shares held by those members who had entered into and completed their share surrender agreement. This submission depended for its efficacy on the correctness of the primary contention that the effect of the share surrender agreements was to end the relationship of Company and shareholder and that the share surrender agreements themselves took effect as transfers of the shares to which they related. The last sentence of the last paragraph of this section, namely paragraph 17, asserted, in the alternative, an estoppel claim that was enigmatic in its brevity. This was the submission that led to my request for assistance that I explained and dealt with in paragraphs [47]-[56] of my principal judgment. I found in favour of the plaintiffs on this issue. But as I have said, I do not propose to revisit it.

17 The third section of the plaintiffs' written submissions dealt with the proposition that the directors ceased to be qualified to hold office. That was said to be because the rights of shareholding of members were suspended upon completion of their share surrender agreements, or upon entry into the share surrender agreements - on the basis that they should be treated as buy-back agreements under the Corporations Act. There then followed an explanation as to why the plaintiffs were legally entitled to requisition the meeting of 6 January 2011, appoint themselves as directors and resolve to terminate the retainer of the Company's solicitors and enter into the purported settlement of the appeal.

Course of the Hearing

18 At the hearing before me, the plaintiffs' closing address broadly followed their written submissions. However, during addresses, I drew attention to the unique contextual matters that I explained in paragraphs [29] - [33] of my principal judgment.

19 I should add that there was also a statement of "real issues" from the plaintiffs. I treated it as a guide to understanding their written submissions. It was detailed, somewhat myopic, and not agreed to by the defendant. It had no formal status and did not operate to affect or qualify my primary duty to determine whether the plaintiffs were entitled to the particular claims for relief which they had sought in the summons and which they substantially repeated in the statement of claim. In any event, the first two "real issues" propounded by the plaintiffs were consistent with the frame of the case as I have explained it. They were:

1 Whether there was an implied term, that:

a) the shareholders would not after completion claim to retain or exercise any right, qualification or office of the shares.

b) the Company would on completion register and do all things required to effect the transfer, surrender and cancellation of the shares.

2 Whether the SSAs constituted an agreement, whereby the Company agreed to buy-back shares in itself within the meaning of s257H of the Act, thereby suspending all share rights on entry and depriving the defendants of the share qualification for directors.

20 It will therefore be apparent that the actual focus of the hearing before me was the construction of the share surrender agreements and the effect of the Corporations Act. The only qualification was the oppression claim, which was addressed sparingly and only following inquiry from me.

The Application to Set Aside

21 The outcome of the proceeding was that I was not satisfied that the plaintiffs were entitled to the declarations and orders which they sought. I therefore dismissed the originating process, namely the summons filed on 10 February 2011. That carried with it the subsequent statement of claim. Additionally, as I pointed out in the principal judgment, neither the summons nor the statement of claim claimed any specific relief in relation to the oppression claim. I therefore fashioned an appropriate declaration to reflect my findings on that question. I then made a costs order.

Rule 36.17

22 The application to set aside is put on two bases. The first depends on the slip rule, Rule 36.17. This cannot succeed. There is no clerical mistake, or inadvertent error or omission, or other error, in my "judgment or order". It accurately reflected my intentions. The application under the slip rule seemed to confuse the distinction between the reasons on the one hand, and the judgment, order or decision on the other hand: see Rule 36.2.

23 In fact, prior to the hearing of the application to set aside the judgment, I requested the legal representatives of the plaintiffs to specify in their proposed notice of motion each clerical mistake, slip or error for which they contended and to identify what precisely they proposed should be substituted. This they could not do. The plaintiffs nonetheless persisted with their application under the slip rule. At the hearing they relied on Newmont Yandal Operations Pty Limited v The J Aron Corporation & The Goldman Sachs Group Inc & Ors (2007) 70 NSWLR 411 (Spigelman CJ, Santow JA and Handley AJA). But that was a case about unintended or unforeseen consequences of a judgment. In such a case, there may well be "error" of the type encompassed by the slip rule, at least when read with Section 56 of the Civil Procedure Act. But it does not assist here.

24 My orders do not have unintended consequences. Their legal effect is to reject the plaintiffs' asserted entitlement to the declarations and orders which they sought. Their practical effect is to deny the validity of the resolutions passed by the plaintiffs at the purported meeting of the Company which they conducted on 6 January 2011 and the steps which they took consequent upon those resolutions. My intention was to bring about a situation by which the Company's appeal from the decision of Ward J, currently at a standstill, could proceed.

Rule 36.16

25 The second basis on which the plaintiffs seek to set aside my decision is more diffuse. It is based on Rule 36.16 and depends for its legal justification on the remarks by Mason J in Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300 at 301.2. In Aktas v Westpac Banking Corporation Ltd (No 2) [2010] HCA 47 (French CJ, Gummow, Hayne, Heydon and Keifel JJ), the majority observed at [6] that the fact that Mason J dissented in the result in that case did not deny the accuracy of the propositions he advanced. See also Holmes Court v Papaconstuntinos [2011] NSWCA 59 at [99] (Allsop P, Beazlery, Giles, Tobias and McColl JJA).

26 The remarks of Mason J in Autodesk were as follows:

The exercise of the jurisdiction to re-open a judgment and to grant a re-hearing is not confined to circumstances in which the applicant can show that, by accident and without fault on the applicant's part, he or she has not been heard. It is true that the jurisdiction is to be exercised with great caution, having regard to the importance of the public interest in the finality of litigation. ... But these statements do not exclude the exercise of the jurisdiction to re-open a judgment which has apparently miscarried for other reasons ... The public interest in the finality of litigation will not preclude the exceptional step of reviewing or rehearing an issue when a court has good reason to consider that, in its earlier judgment, it has proceeded on a misapprehension as to the facts or the law.

27 It became clear during the argument before me on the application to set aside my judgment, that the real basis of the plaintiffs' contention to invoke the exceptional step of reviewing and rehearing a proceeding that has been finally determined, was that I had not determined what were the residual rights of shareholders after completion of the share surrender agreements. In particular, the plaintiffs submitted that I had not determined what rights to vote at meetings, and to receive notice of meetings, remained after completion of the share surrender agreement. The plaintiffs wanted to know, it was said, what the respective rights and obligations of members were, if the plaintiffs principal claims for relief were rejected.

28 All of this is true. I have not gone as far as the plaintiffs now say I should have. I have only determined that they are not entitled to the relief which they sought. This was in accordance with the way the case was presented and argued before.

Conclusion

29 There are obvious dangers in making declarations that are not sought and in seeking to resolve controversies that are merely hypothetical. But I accept that there is a risk in this case that the controversy between the parties will not be quelled unless I go further than to merely determine that the plaintiffs are not entitled to the declarations and orders that they seek. I am therefore reluctantly persuaded that my duty pursuant to Sections 56 and 90 of the Civil Procedure Act makes it appropriate to allow my decision to be re-opened, but only so that the parties can put submissions as to what possible further declarations should be made, given the conclusions of fact and law that I have already reached.

30 Section 56(1) and (2) provide as follows:

56(1) The overriding purpose of this Act and of rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings.

(2) The court must seek to give effect to the overriding purpose when it exercises any power given to it by this Act or by rules of court and when it interprets any provision of this Act or of any such rule.

31 Section 56 adds a new dimension to proceedings in this court. It has the potential to influence aspects of the hearing and determination of proceedings in ways that have not yet been fully absorbed or elucidated. The decision in Newmont Yandal Operations Pty Ltd v The J Aron Corporation & The Goldman Sachs Group Inc (supra) represents one example of its unexpected reach.

32 Section 90(1) provides as follows:

90(1) The court is, at or after trial or otherwise as the nature of the case requires, to give such judgment or make such order as the nature of the case requires.

33 This is a marginal case for the exercise of the exceptional power to re-open a judgment and grant a re-hearing. I am exercising my discretion to do so partly because the unfortunate litigious history between the plaintiffs and the Company, suggests that, ultimately, it will be in the interests of justice if I do so; because it may limit the opportunities for further disputation if I go further than what I have so far done. I do not therefore think that I should limit myself to rejecting the specific declarations and orders which the plaintiffs seek. I should go further and do what I can to facilitate the resolution of the real issues. If necessary, I should give such further judgment or order, or provide such further reasons, as the nature of this particular case requires.

34 I will list the proceedings before me in the Expedition List on Friday, 13 May, 2011 for orders, appropriate directions to facilitate the further hearing, and for the allocation of a further hearing date. I will reserve costs.

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Decision last updated: 10 May 2011