Case: Commonwealth of Australia v Sheahan, in the matter of Markethaven Pty Ltd (subject to a deed of company arrangement) [2004] FCA 1301
Outcome: discussed
Dallen's affidavits establish the following matters: (1) Markethaven is subject to a deed of company arrangement. The company's registered office is in Queensland and its director and secretary, Mr Sid Sarantis, resides in that State. The one shareholder of the company, Ms Lynette Sarantis, also resides in Queensland. The administrators under the deed of company arrangement are Mr Ian Lock and Mr John Sheahan, who are members of the firm Sheahan Lock Partners. In the records provided to the Australian Securities and Investments Commission, Mr Lock's address is an address in South Australia and Mr Sheahan's address is an address in New South Wales. (2) The public office of the TGA is an address in the Australian Capital Territory. The TGA does not have any other public offices in Australia. It does have auditors based in Commonwealth Government offices in Sydney, Melbourne, Brisbane and Adelaide. (3) The second, third, fourth and fifth respondents reside in the Australian Capital Territory and the sixth respondent resides in Victoria. (4) On 7 April 2004, the liquidators of Pan commenced a proceeding (NSD 489 of 2004) in this Court against Mr Selim alleging breaches of his duties under s 180 of the Corporations Act 2001 (Cth) and under his contract of employment with Pan. Mr Selim brought cross-claims against the Commonwealth. In the fourth cross-claim, Mr Selim alleged that the Commonwealth had made a number of negligent misrepresentations during the course of audits and investigations into Pan's conduct by the TGA in the period from January to April 2003. The thrust of the representations was that the TGA, in carrying out certain conduct, was acting with one purpose in mind whereas in fact it had quite a different purpose in mind. It was also alleged by Mr Selim that the Commonwealth acted negligently in taking administrative action to suspend Pan's licence and cause a recall of all its products on 28 April 2003, and that it relied on inadequate and incorrect materials. In the fifth cross-claim, Mr Selim alleged that Ms Maclachlan, Mr Slater, Mr Tribe and Mr Fraser had engaged in the tort of misfeasance in public office in exercising powers during the conduct of the audits and investigations of Pan from January to April 2003 in a way which was knowingly in excess of their powers and done with malicious intent to injure Pan and Mr Selim. Mr Selim alleged that the Commonwealth was vicariously liable for the tortious conduct of Ms Maclachlan, Mr Slater, Mr Tribe and Mr Fraser. On 15 April 2008, the liquidator of Pan and Mr Selim reached a settlement of the action by Pan against Mr Selim. As part of the settlement, the liquidator of Pan assigned to Mr Selim certain causes of action held by Pan against the Commonwealth. Mr Selim's cross-claims against the Commonwealth proceeded. It is convenient to refer to these cross-claims as the Selim proceeding. The hearing of the Selim proceeding commenced on 30 June 2008 before Emmett J, and was adjourned part-heard on or about 30 July 2008. At the time of the adjournment, seven witnesses had given evidence on behalf of Mr Selim and eight witnesses had given evidence on behalf of the Commonwealth, including the second, fifth and sixth respondents. The Commonwealth had not called all of its witnesses and had as proposed witnesses an additional seven persons, including the third and fourth respondents. A substantial number of the witnesses and proposed witnesses of the Commonwealth resided in the Australian Capital Territory. Before the hearing resumed, Mr Selim reached a settlement with the Commonwealth. The Selim proceeding settled on terms requiring the Commonwealth to pay Mr Selim the sum of $50 million. (5) The Suspension Notice and the Recall Notice were issued to Pan during a meeting between representatives of Pan and the TGA that took place at Pan's premises in Sydney, New South Wales, on 28 April 2003, and the Markethaven Sponsor Notice was issued by the TGA from its Canberra office to Markethaven at its premises in Queensland. (6) On 23 December 2008, proceedings were commenced against the Commonwealth and the personal respondents under Pt IVA of the Federal Court of Australia Act 1976 (Cth) by Pharm-a-care Laboratories Pty Ltd. It is convenient to refer to this proceeding as the representative proceeding. The application in the representative proceeding states: "1. This application is brought by the applicant as a representative party. 2. The group members to whom the proceeding relates are persons who: (a) had on 28 April 2003 an economic interest in Pan Pharmaceuticals Ltd continuing to manufacture and supply certain classes of goods, principally vitamins, health supplements and complementary medicines; (b) suffered loss by reason of or as a consequence of the conduct of the Therapeutic Goods Administration in relation to regulatory action purportedly taken against Pan Pharmaceuticals on and from 28 April 2003; and (c) have, as at the date of commencement of this proceeding, entered into a litigation funding agreement with IMF (Australia) Ltd in relation to this proceeding." In the representative proceeding, Pharm-a-care claims, for itself and the group, damages, exemplary damages, interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), costs, and such further or other relief as the Court determines is appropriate. The application in the representative proceeding sets out what are alleged to be questions of law or fact which are common between the claims of the applicant and the group members. (7) The representative proceeding is being funded by IMF (Australia) Ltd ("IMF"). On 5 September 2008, IMF made the following release to the Australian Securities Exchange: "The Board of Directors of IMF (Australia) Ltd announces that it proposes to fund a claim against the Commonwealth of Australia by certain persons who have suffered losses as a result of regulatory action against Pan Pharmaceuticals (in liquidation) ('Pan') in April 2003. The claim, to be filed in the Federal Court of Australia by McLachlan Thorpe Partners relate [sic] to regulatory action taken by the Therapeutic Goods Administration ('TGA') against Pan in April 2003 which caused Pan to fail and had a material impact on a range of parties, including Pan's shareholders, customers and creditors. The claim will allege misfeasance in public office and negligence by the TGA and its officers." At the annual general meeting of IMF held on 7 November 2008, the chief executive officer of IMF made a presentation to shareholders during the course of which he referred to the representative proceeding and said that the proceeding had a maximum claim value of $150 million. That is also the estimate of the value of the claim given in IMF's summary of the representative proceeding available on its website. (8) The statement of claim in the representative proceeding is a very lengthy document. For present purposes it is sufficient for me to adopt the description of the proceeding given by the Commonwealth in its written outline of submissions. This description is accurate. "In the representative proceedings - (a) Pharm-a-care makes allegations of misfeasance in public office against Ms Maclachlan, Mr Cesarin, Mr Tribe, Mr Fraser and Mr Slater in connection with the investigation and audit of Pan culminating in the issue of the suspension notice, the recall notice and the sponsors notice of the same general nature as Markethaven does in these proceedings and alleges that the Commonwealth is vicariously liable for the tortious conduct of those persons. (b) Pharm-a-care, like Markethaven, alleges a breach of a duties of care [sic] by the Commonwealth, Ms Maclachlan, Mr Cesarin, Mr Tribe, Mr Fraser and Mr Slater in connection with the issue of the suspension notice, the recall notice and the sponsors notice. Additionally, Pharm-a-care pleads causes of action in deceit, for inducing breach of contract, the tort in James v Commonwealth (1939) 64 CLR 562 and for trespass to goods." (9) On 16 July 2004, Mr Sheahan, a joint and several administrator of Markethaven, applied to the Federal Court for orders under s 596B and s 597(9) of the Corporations Act 2001 (Cth) for the purpose of examining three TGA officers, including Ms Maclachlan and Mr Fraser, and one TGA consultant, in order to obtain information relating to the TGA's suspension of Pan's licence under the Therapeutic Goods Act . That application was made in the New South Wales District Registry of this Court. On 24 July 2004, a Registrar of this Court made a series of orders under s 596B and s 597(9) for examination summonses to issue and books and documents to be produced. Those persons who were subject to the orders sought the discharge of the orders. Their application was heard by Emmett J, who, on 8 October 2004, made orders discharging the examination summonses and orders for production of documents: Commonwealth of Australia v Sheahan, in the matter of Markethaven Pty Ltd (subject to a deed of company arrangement) [2004] FCA 1301. In the course of his reasons, Emmett J said (at [103], [104]): "I have already indicated that the Challenged Orders could not stand in the form in which they were made. That is to say, orders could only be supported on the basis that the documents to be produced by the Commonwealth would be as described in the amended schedules agreed by the parties. Accordingly, the orders for production addressed to the Document Recipients and to the Commonwealth should be discharged in any event. However, I consider that none of the Challenged Orders should stand, having regard to the want of full, frank and candid disclosure by Mr Sheahan. The discharge of the examination summonses and orders for production would not, however, necessarily preclude a fresh application. In any such fresh application, the precise relationship between Mr Sheahan and Mr Selim and the circumstances in which Mr Sheahan came to be involved with Markethaven, together with possible difficulties with the putative cause of action, would have to be disclosed in full, to enable the Court to make an informed decision as to how the discretion should be exercised." No fresh application for examination summonses and orders for production was made. It is not necessary for me to set out in detail the events which occurred in 2004. In so far as they are known, they are set out in Emmett J's reasons at [38]-[63]. It seems that Mr Andrew Thorpe of McLachlan Thorpe Partners, solicitors, acted for Mr Selim in the Selim proceeding. McLachlan Thorpe Partners are the solicitors for the applicant in the representative proceeding. It seems that, in January 2004, Mr Sheahan was corresponding with Mr Thorpe with a view to assisting Mr Selim in acquiring Pan's cause of action "against the TGA". It seems that Mr Selim paid the costs of the Markethaven meeting which appointed Messrs Sheahan and Lock as joint and several administrators of the deed of company arrangement of Markethaven in place of the then deed administrators. It seems that a company called Markethaven Funding Company Limited was formed on 25 June 2004 and that the sole director of that company was Mr Selim's wife, Ms June Selim. On 12 August 2004, the company entered into an Investigation Funding Deed with Markethaven and Messrs Sheahan and Lock. (10) Mr Dallen is of the view that Mr Selim and others who gave evidence on his behalf in the Selim proceedings may be called as witnesses by Markethaven and by the applicant in the representative proceedings. (11) A database containing approximately 18,249 documents and compiled for the purpose of the Commonwealth giving discovery in the Selim proceeding is held by Mr Dallen's firm in Sydney, New South Wales. To the extent that there are other relevant documents in the Commonwealth's possession, custody or control, those documents are likely to be held by the TGA in its offices in the Australian Capital Territory. (12) It seems that Markethaven has a substantial excess of liabilities over assets. In November 2008, its solicitors said that the company's assets were worth $33,000 and its liabilities totalled $671,032.54. At about that time, the Commonwealth's solicitors raised with Markethaven's solicitors the question of whether Markethaven should provide security for costs. In the course of correspondence which passed between the Commonwealth's solicitors and Markethaven's solicitors, the latter indicated that Markethaven was not receiving funding for the conduct of the proceeding from any third party, nor did any third party stand to benefit from the proceeding. After I had heard submissions on the Commonwealth's application, a sixth affidavit of Mr Dallen was filed. The parties were in agreement that I could have regard to that affidavit. The affidavit was sworn on 13 May 2009. Mr Dallen deposes to the fact that, since submissions on the Commonwealth's application were heard in March 2009, two new Federal Court proceedings against the Commonwealth and the personal respondents in relation to the suspension of the licence of Pan to manufacture therapeutic goods under the Therapeutic Goods Act had been commenced in the New South Wales District Registry of this Court. On 24 April 2009, Vita Health Laboratories (Australia) Pty Ltd and other applicants listed in a schedule to the application commenced proceedings against the Commonwealth and the personal respondents. I will refer to these proceedings as the Vita Health proceeding. Vita Health Laboratories (Australia) Pty Ltd ("Vita Health") and one of the other applicants, Supplements World Pte Ltd (in Liquidation) ("Supplements World"), were sponsors of therapeutic goods supplied to them by Pan, and the other applicants were entities related to Vita Health and Supplements World. Mr Dallen expresses the view that many of the issues that are in dispute in the Markethaven proceeding are raised in the statement of claim in the Vita Health proceeding and that there will be a substantial overlap in the matters that will be the subject of the Vita Health proceeding and this proceeding. The Vita Health proceeding is in the docket of Flick J.