ACN 101 074 015 Pty Ltd v Oaks Hotels and Resorts Limited
[2012] VSC 502
•25 October 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
List D
No. 4579 of 2011
| ACN 101 074 015 PTY LTD | Plaintiff |
| v | |
| OAKS HOTELS & RESORTS LIMITED | Defendant |
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JUDGE: | DAVIES J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 15 October 2012 | |
DATE OF JUDGMENT: | 25 October 2012 | |
CASE MAY BE CITED AS: | ACN 101 074 015 Pty Ltd v Oaks Hotels & Resorts Limited | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 502 | |
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PROCEDURE – PLEADINGS – Strike out application - Allegations of breaches of directors’ common law, statutory and fiduciary duties – Whether the counterclaim constitutes an abuse of process – Whether there are material deficiencies in the pleading – Question of law to be tried on the elements of a breach of s 181 Corporations Act 2001 (Cth) – Corporations Act 2001 (Cth), ss 180, 181, 182
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Norton Rose | |
| For the Defendant and Plaintiff by Counterclaim | DJ Collins SC with JB Davis | Norton Gledhill |
| For the Fourth Defendant by Counterclaim | C Sweeney QC | Harris Carlson Lawyers |
HER HONOUR:
The fourth defendant by counterclaim (“Mr Wong”) has applied to have the allegations made against him by the defendant (“Oaks”) by counterclaim dated
6 August 2012 struck out. The application was put on two bases: (1) the counterclaim against him is an abuse of process; and (2) there are material deficiencies in the pleading.
The counterclaim has been made in a proceeding in which Oaks is sued by the plaintiff (“Austock”) for payment of a success fee. The success fee is alleged to be payable in accordance with the terms of an engagement letter dated 31 January 2011 (“the disputed engagement letter”). Austock has alleged that Mr Wong signed the disputed engagement letter on behalf of Oaks on 1 February 2011. Amongst other defences pleaded by Oaks, Oaks has alleged that the disputed engagement letter was not executed by it, or by any person who had its authority to execute it so as to bind Oaks to it. Oaks has counterclaimed against Mr Wong alleging that Mr Wong, as chairman and a director of Oaks, owed common law, statutory and fiduciary duties to Oaks, which he breached.
The common law duty that Mr Wong is alleged to have breached was a duty to Oaks to act within his authority.[1]
[1]Further Amended Counterclaim (6 August 2012), [26].
The statutory duties alleged to have been breached were the duties:
(a) pursuant to s 180 of the Corporations Act 2001 (Cth) (“the Act”), to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if they were a director of a corporation in Oaks’ circumstances and occupied the office held by him and had his responsibilities;[2]
(b) pursuant to s 181(1) of the Act, to exercise his powers and discharge his duties in good faith and in the best interests of Oaks and for a proper purpose;[3] and
(c) pursuant to s 182(1) of the Act, not to use his position improperly as a director of Oaks to gain an advantage for himself or someone else or cause detriment to Oaks.[4]
[2]Ibid [27(a)].
[3]Ibid [27(b)].
[4]Ibid [27(c)].
The fiduciary duties alleged to have been breached were the duties:
(a) not to engage in conduct in which there was a conflict or a real and substantial possibility of a conflict between his interests and his duties as a director of Oaks; and
(b) not to use his fiduciary position as a director of Oaks to obtain benefits for himself or others without Oaks’ authority.[5]
[5]Ibid [39].
Mr Wong is alleged to have breached those duties by reason of the matters alleged in, or which include the matters alleged in, paragraph 28. Paragraph 28 pleads that Mr Wong:
(a) executed the disputed engagement letter without Oaks’ authority to do so; and
(b) knew or ought to have known that he did not have Oaks’ authority to execute that letter.[6]
[6]See ibid [30], [31], [32], [40] and [43].
Is the counterclaim an abuse of process?
The basis for this contention is Oaks’ concession to delete paragraphs 39(b), 40 and 41 of the counterclaim. Those paragraphs contained the allegation that Mr Wong breached his fiduciary duty to Oaks by using his fiduciary position as a director of Oaks to obtain benefits for another without Oaks’ authority. It was put that the allegation should never have been made because there was no proper basis for making it, and that this was borne out by the failure to plead any material facts in support of the allegation. It was further put that the counterclaim should be struck out in its entirety as an abuse of process because the allegation was made to gain some collateral advantage for Oaks, as borne out by the withdrawal of the allegations when challenged.
The making of baseless allegations is a misuse of the Court’s processes and is manifestly unfair to a party. It is a very serious matter if allegations are shown to have been made without any factual and legal basis. The sanction may be to strike out the whole of the pleading as an abuse of process. However, I am not persuaded that I can, or should, find on the available material that the allegation was made without any proper factual foundation, having regard to the fact that the allegation was supported by a proper basis certificate that was filed by the solicitor for Oaks. That certificate was filed with the counterclaim in its original form, which contained a pleading in like form. Without further material I am not prepared, on this strike out summons, to infer that the allegation was made for some collateral purpose. I would not strike out the counterclaim in its entirety as a abuse of process.
Are there material deficiencies in the pleading?
It was submitted for Mr Wong that the pleading is defective because paragraphs 26 and 28 contain four separate concepts of “authority”: (1) Mr Wong had a duty to act within “his authority”;[7] (2) “The authority of Wong was …”;[8] (3) “Oaks’ authority”;[9] and (4) Mr Wong’s “lack of authority”.[10] It was put that the pleading proceeds as if they are all the same concepts, when they are not. I disagree. It is sufficiently plain that these concepts are synonymous and mean any authority conferred on Wong in his capacity as chairman and a director of Oaks.
[7]Ibid [26].
[8]Ibid, opening line of the particulars to [26].
[9]Ibid [28(a)] and [28(b)].
[10]Ibid, opening line of the particulars to [28].
Next it was submitted that the particulars to paragraph 26 do not support the duty to act within the authority that is alleged. Oaks has agreed to add particulars of that duty.
Next it was submitted that the counterclaim failed to plead sufficient material facts to found the allegation that Mr Wong owed a duty to act within his authority and to identify the nature and scope of that duty. I again disagree. The material fact pleaded is that Mr Wong was the chairman and a non-executive director of Oaks.[11] It is then alleged that Mr Wong was under a duty to act within his authority as the chairman and a non-executive director of Oaks.[12] His authority in that capacity is particularised in paragraph 26. Oaks has then alleged that it was not within Mr Wong’s authority as chairman and a director of Oaks to sign or bind Oaks to the disputed engagement letter.[13] The lack of authority is particularised in paragraph 28. The elements of the claim are sufficiently pleaded.
[11]Ibid [25]
[12]Ibid [26]
[13]Ibid [28].
Next it was submitted that there are no material facts pleaded to support the allegation in paragraph 28(a) that Mr Wong “executed [the disputed engagement letter] without Oaks’ authority to do so”. This complaint also has no substance. Paragraph 28(a) does not appear in isolation. It appears in conjunction, and is to be read, with paragraphs 25 and 26. The allegation against Mr Wong in paragraph 28(a) is sufficiently supported by paragraphs 25 and 26.
Then it was submitted that there are no material facts pleaded to support the allegation in paragraph 28(b) (repeated in paragraph 32C) that Mr Wong knew, or ought to have known, that he lacked authority to sign the disputed engagement letter. The objection is misconceived because the material fact is the knowledge alleged. That said, the allegation that Mr Wong ought to have known is not supported by particulars. The particulars are only as to Mr Wong’s knowledge of his lack of authority. Particulars of the alternative fact alleged are necessary and must make it clear which particulars are relied on for actual knowledge and which particulars are relied on for knowledge that he ought to have had.
There is substance in the complaint that the allegation in paragraph 30(b) (repeated in paragraph 32D) of breach of s 180 of the Act has not been sufficiently pleaded. Section 180 of the Act requires directors to exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person in their position would exercise. Whilst the duty is alleged in paragraph 27(a), there is no allegation as to the care and diligence that a reasonable person in Mr Wong’s position would have exercised in the discharge of their duties. This should have been put as a substantive allegation and it is insufficient merely to rely on the matters pleaded in paragraph 28(a) and the matters pleaded in paragraph 28(b) that Mr Wong “knew or ought to have known that he did not have Oaks’ authority to execute [the disputed engagement letter] ”, which Oaks now additionally relies on.
There is also substance in the complaint about the allegations of Mr Wong’s contravention of the duty under s 181(1) of the Act to act in good faith in the best interests of the company. These allegations are contained in paragraphs 31 and 32(a). The claims are made “by reason of the matters referred to in paragraph 28”: that is, based on the allegations that Mr Wong signed the letter without Oaks’ authority and knew, or ought to have known, that he did not have Oaks’ authority. I find the pleadings confusing and unclear. It is unclear whether it is alleged that s 181(1) was breached because Mr Wong ought to have known that he did not have Oaks’ authority or because he knew that he did not have Oak’s authority. Moreover, it is simply not possible on the pleadings as they stand to know how Oaks will put its case on the essential elements of the allegations. As presently formulated, the allegations depend on the proposition that Mr Wong knew or ought to have known that he lacked authority. The allegations are inadequate to show how this is relied upon as an element of the contravention. Merely to allege that Mr Wong knew, or ought to have known, that he lacked authority is not enough. The form of the pleading is unsatisfactory.
Some time was taken up with the question of law as to whether the claim of contravention of s 181(1) was defective because Oaks had not pleaded any mental element as a requisite element of that cause of action. This debate arose in the context of argument over whether the bare allegation that Mr Wong knew or ought to have known that he lacked authority was sufficient to support the allegation of contravention. There are authorities that indicate that a director can breach their duty of good faith if the law objectively considers that what the director did was improper, even if the director subjectively believed that they were acting in the best interests of the company.[14] Other cases have held that a breach involves consciousness that what is being done is not in the best interests of the company and deliberate conduct in disregard of that knowledge.[15] I was not asked to resolve the question of law nor do I consider it appropriate to do so on the strike-out application. It is sufficient to note that this is a serious and difficult question of law which will fall to be determined at trial or as a separate question determined in advance of trial.
[14]See for example, Australian Growth Resources Corporation Pty Ltd v Van Reesema & Ors (1988) 13 ACLR 261; Australian Securities and Investments Commission v Sydney Investment House Equities Pty Ltd [2008] NSWSC 1224, and Australian Securities and Investments Commission v Adler [2002] NSWSC 171.
[15]See for example, Marchesi v Barnes and Keogh [1970] VR 434; Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; Australian Securities and Investments Commission v Macdonald (No 11) (2009) 256 ALR 199, and Re S & D International Pty Ltd (No 4) [2010] VSC 388.
Paragraph 32(b) suffers from the same defects as paragraphs 31 and 32(a) because it also depends on paragraph 28 as constituting the material facts supporting the allegation and similarly requires re-pleading. Again, it is simply not possible on the pleadings as they stand to know how Oaks will put its case on the essential elements of this alleged contravention. It is necessary for Oaks to plead the material facts constituting the alleged impropriety and separately the material facts constituting the alleged requisite purpose. It is also unclear and confusing on the pleading as it stands what the material facts that are alleged to constitute the “purpose” element are. These facts must be clearly identified so that Mr Wong is informed of the case that is put is against him.
The particulars under paragraph 28 in (vi) (lack of authority) and (ii) (knowledge), paragraph 32C in (vi) and paragraph 32E also require re-pleading. Merely making reference to particular paragraphs in another pleading as constituting the particulars in this pleading is unsatisfactory. The particulars should stand alone and should be set out. Absent pleading out what the other pleading relevantly contains, the particulars are uninformative and possibly misleading or even wrong. It should not be left to Wong to work out what was intended to be put forward as the particulars.
Finally, it is open to Oaks to plead in paragraph 32E, as it has, that Austock would not have provided advisory services if Wong had not signed the disputed engagement letter but the allegation suffers from the defect that because of the deficiencies in the preceding paragraphs, it is unclear how this pleading fits into the elements of the alleged contraventions and the relief sought and whether it is sufficient.
Oaks has accepted the other deficiencies raised by Mr Wong and will amend the counterclaim accordingly. In the circumstances, it is unnecessary to deal with them.
For these reasons, the counterclaim requires substantial re-pleading. I propose to order:
1. Paragraphs 30, 31, 32, 32A, 32B, 32C, 32D and 32E are struck out.
2. The plaintiff by counterclaim has leave to file and serve a second further amended counterclaim against the fourth defendant by counterclaim.
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Schedule of Parties
ACN 101 074 015 PTY LTD
ACN 101 074 015
Plaintiff
and
OAKS HOTELS & RESORTS LIMITED
ACN 113 972 366
Defendant
and
DOUGLAS WONG
Third Party
[BY ORIGINAL PROCEEDING]
AND BETWEEN
OAKS HOTELS & RESORTS LIMITED
ACN 113 972 366
Plaintiff by counterclaim
and
ACN 101 074 015 PTY LTD
ACN 101 074 015
First defendant by counterclaim
and
DALE MORONEY
Second defendant by counterclaim
and
AUSTOCK SECURITIES LIMITED
ACN 053 513 438
Third defendant by counterclaim
and
DOUGLAS WONG Fourth defendant by counterclaim
[BY COUNTERCLAIM]
0
6
0