Babcock & Brown DIF III Global Co-Investment Fund, LP v Babcock & Brown International Pty Ltd (No 2)
[2017] VSC 556
•19 September 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2013 5903
| BABCOCK & BROWN DIF III GLOBAL CO-INVESTMENT FUND, LP | First Plaintiff |
| DIF III GP LIMITED | Second Plaintiff |
| v | |
| BABCOCK & BROWN INTERNATIONAL PTY LIMITED (ACN 108 617 483) & ORS (According to the schedule annexed) | Defendants |
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JUDGE: | HARGRAVE J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 7 September 2017 |
DATE OF JUDGMENT: | 19 September 2017 |
CASE MAY BE CITED AS: | Babcock & Brown DIF III Global Co-Investment Fund, LP & Anor v Babcock & Brown International Pty Limited & Ors (No 2) |
MEDIUM NEUTRAL CITATION: | [2017] VSC 556 |
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PRACTICE AND PROCEDURE – Pleadings – Application to strike out parts of statement of claim – Supreme Court (General Civil Procedure) Rules 2015, r 23.02 – Held: Application allowed in part.
EQUITY – Fiduciary duties – Duty of a promoter to potential investors – Whether alleged prescriptive duty of utmost candour and honesty arguable – Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193, United Dominions Corporation v Brian (1985) 157 CLR 1, Catt v Marac Australia Ltd (1986) 9 NSWLR 639, Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) (2001) 188 ALR 586 considered – Held: Arguable claim.
EQUITY – Breach of fiduciary duties – Third party’s knowing assistance of breach – Whether express pleading of dishonest breach by fiduciary necessary – Singtel Optus Pty Ltd v Almad Pty Ltd [2014] 87 NSWLR 609 applied – Held: Pleading of dishonesty required.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr L Armstrong QC with Mr C Brown | Piper Alderman |
| For the Sixteenth and Seventeenth Defendants (RBS defendants) | Mr M Borsky SC with Dr J McComish | Allens |
| For the Thirteenth Third Party (Berenice Talintyre) | Mr A Broadfoot QC with Ms B Hutchins | SBA Law |
HIS HONOUR:
The plaintiffs’ statement of claim (statement of claim) is dated 23 February 2015. Following numerous interlocutory skirmishes, pleadings have recently been filed by the other parties and discovery has been given. Most of the requisite trial orders have been made.
In my earlier reasons for dismissing the stay applications brought by some of the defendants,[1] I summarised the allegations made by the plaintiffs in the statement of claim.[2] That summary should be read as part of these reasons, and I will adopt the same terminology in these reasons unless the context otherwise requires.
[1]Babcock & Brown DIF III Global Co-Investment Fund, LP v Babcock & Brown International Pty Limited (2016) 338 ALR 297.
[2]Ibid 299–305 [1]–[34].
The statement of claim includes allegations against Berenice Talintyre (named as the 18th defendant) and Spin Holdco Inc (named as the 28th defendant). The plaintiffs have resolved their claims against those defendants and discontinued the proceeding against them.
However, by a third party notice dated 23 February 2017, the RBS defendants have made claims against Ms Talintyre for contribution in the event that they are found liable to pay damages or compensation to the plaintiffs. The third party notice is endorsed with a statement of claim, which adopts many of the allegations made by the plaintiffs in their statement of claim. For convenience, I will refer to the third party statement of claim as the third party notice.
As is usual in such circumstances, the third party notice adopts many paragraphs of the statement of claim ‘solely for the purposes of [the] third party claim’ against Ms Talintyre.
I note that RBS had also filed a third party notice against Spin Holdco, and so it also remains a party to the proceeding. The RBS claims are based on alleged contractual indemnities and are not relevant for present purposes.
Ms Talintyre has applied under s 63 of the Civil Procedure Act 2010 for summary judgment against the RBS defendants on the third party claims against her for misleading and deceptive conduct. Ms Talintyre also seeks orders under r 23.02 of the Supreme Court (General Civil Procedure) Rules 2015 striking out certain paragraphs of the third party notice.
RBS has also filed a summons against the plaintiffs. The RBS summons is a conditional one; based on the proposition that, if any of its claims against Ms Talintyre are struck out or dismissed, the corresponding claims made by the plaintiffs against other defendants, and against it on the basis of those claims, should also be struck out or dismissed. RBS contends that the corresponding claims are relevantly indistinguishable from its claims against Ms Talintyre.
Should the misleading and deceptive conduct claims be struck out?
The written submissions filed in support of Ms Talintyre’s applications made it plain that the summary judgment application was limited to the claims against her for contribution based on her allegedly misleading and deceptive conduct;[3] with those allegations also being the subject of a strikeout application should the summary judgment application fail.[4]
[3]Talintyre written submissions [27]–[41].
[4]Ibid [42]–[43].
The misleading and deceptive conduct allegations are based solely on the repetition of paragraphs [115] to [118] of the statement of claim. However, having regard to further particulars provided by the plaintiffs after written submissions were filed, Ms Talintyre abandoned her summary judgment application concerning those allegations and limited her challenge to them on a strikeout basis, without opposing leave to re-plead.
During the course of argument, it became apparent that there was merit in the strike-out application based on the form of the plaintiffs’ misleading and deceptive conduct allegations, because those allegations are embarrassingly ‘rolled up’. The allegations do not separately plead each material fact with particulars where necessary. In particular, the allegations do not precisely identify the content of the ‘Promoter’s Representation’ alleged. As discussed in argument, there may be good reason to question whether the case being advanced requires that a specific representation be identified and pleaded.
On this basis, I will strike out this aspect of the statement of claim. I have already given the plaintiffs leave to re-plead it as they may be advised. Although not specifically discussed in argument, consequential directions have since been made for the filing of responsive pleadings. The effect of my orders was that paragraph [31] of the third party notice was struck out on Ms Talintyre’s summons, and paragraphs [115] to [118] of the statement of claim were struck out on the RBS summons.
Should the fiduciary claims be struck out?
I turn to consider Ms Talintyre’s strikeout applications under r 23.02 based on allegations that she:
(1) breached fiduciary duties owed by her to the partnership; and/or
(2) knowingly assisted breaches by other defendants of their fiduciary duties to the partnership.
The principles to be applied in considering Ms Talintyre’s strikeout application were not in contest. They were summarised by John Dixon J in Wheelahan v City of Casey (No 12),[5] in (so far as is relevant to these applications) the following terms:
[5][2013] VSC 316.
(a)Order 13 of the Rules set out the relevant requirements of a sufficient pleading, while r 23.02 provides the grounds on which the sufficiency of a pleading may be impugned;
(b)the function of a pleading in civil proceedings is to alert the other party to the case they need to meet (and hence satisfy basic requirements of procedural fairness) and further, to define the precise issues for determination so that the court may conduct a fair trial;
(c)the cardinal rule is that a pleading must state all the material facts to establish a reasonable cause of action (or defence). The expression ‘material facts’ is not synonymous with providing all the circumstances. Material facts are only those relied on to establish the essential elements of the cause of action;
(d)as a corollary, the pleading must be presented in an intelligible form – it must not be vague or ambiguous or inconsistent. Thus a pleading is ‘embarrassing’ within the meaning of r 23.02 when it places the opposite party in the position of not knowing what is alleged;
(e)…
(f)pleadings, when well-drawn, serve the overarching purpose of the Civil Procedure Act 2010 (Vic);
(g)…
(h)it is not sufficient to simply plead a conclusion from unstated facts. In this instance, the pleading is embarrassing;
(i)…
(j)…
(k)…
(l)…
(m)…
(n)in an application under r 23.02, the court will only look at the pleading itself and the documents referred to in the pleading;
(o)the power to strike out a pleading is discretionary. As a rule, the power will be exercised only when there is some substantial objection to the pleading complained of or some real embarrassment is shown …[6]
[6]Ibid [25] (citations omitted).
To this summary, I would add that the Court should consider the pleading under a challenge as a whole and adopt a practical case management approach to pleading objections, rather than accepting technical objections when the true nature of the case to be met is clear from reading the pleading as a whole and there is no embarrassment to filing a responsive pleading. Such an approach accords with the discretionary nature of the power to strike out and with the overarching purpose under the Civil Procedure Act. However, in cases alleging dishonesty or fraud, precise pleadings with full particulars are required.
Broadly speaking, Ms Talintyre’s applications in this regard raise the following issues concerning the adequacy of the third party notice, and the paragraphs of the statement of claim which it adopts:
(1) Is the ‘promoter allegation’ a sufficient basis for the alleged fiduciary relationships?
(2) If so, are the formulated fiduciary duties sustainable?
(3) For accessory liability, is it necessary to plead a dishonest and fraudulent breach of fiduciary duty? If so, has that been pleaded?
Before considering these issues, it is necessary to stand back and consider the statement of claim and the third party notice as a whole and, in that light, ask:
Does the plaintiffs’ case previously advanced against Ms Talintyre, as adopted and expanded by the RBS defendants in the third party notice, give Ms Talintyre clear notice of the case she needs to meet at trial?
As I remarked a number of times in oral argument, the answer to that question is obviously ‘yes’. As summarised in my earlier reasons, and from reading the statement of claim as a whole, it is clear that the plaintiffs’ case which was previously maintained against Ms Talintyre is that:
(1) the partnership would not have invested in the Coinmach merger transaction if the RBS proposal, the counteroffer and/or the RBS preference agreement (and the reasons of the parties to that agreement for negotiating and making it) had been disclosed to the partnership (the undisclosed matters);
(2) each ‘promoter defendant’ (as defined) breached a fiduciary duty to the partnership by dishonestly failing to disclose the undisclosed matters prior to the partnership committing to its investment in the Coinmach Deal (the fiduciary claims); and
(3) Mr Topfer, Mr Green, Ms Talintyre and Mr Umbrecht knew of the dishonest breaches of fiduciary duty by the other promoter defendants (including BBIPL and BBLP) and with that knowledge assisted those breaches in the specific manner pleaded (the knowing assistance claims).
The fact that the answer to the question I have posed is ‘yes’ does not necessarily mean that the third party notice should not (in whole or in part) be struck out. If it raises allegations which have no real prospect of success, in the sense that they are fanciful, then the pleading is liable to be struck out however clearly it is expressed.[7] In this context, I proceed to consider Ms Talintyre’s challenges to the fiduciary claims and knowing assistance claims made against her in the third party notice.
[7]CA & CA Ballan Pty Ltd v Oliver Hume (Australia) Pty Ltd [2017] VSCA 11, [24].
Is the ‘promoter allegation’ a sufficient basis for the alleged fiduciary relationships?
In both the statement of claim and the third party notice, Ms Talintyre is alleged to have been a promoter of the Coinmach Deal (the promoter allegation).[8] On this basis, the RBS defendants allege that Ms Talintyre owed the partnership fiduciary duties:
[8]Statement of claim [85]; third party notice [20].
(1) of utmost candour and honesty in relation to her promotion of the Coinmach deal and the investment to the partnership (the candour and honesty duty);
(2) not to allow a position of conflict to arise between her duties to the partnership and her own interests or duties to others;[9] and
(3) not to use her position for her own benefit or the benefit of others.
[9]Third party notice [24(a)].
Ms Talintyre contends that the promoter allegation is, as a matter of law, insufficient to give rise to a fiduciary relationship and that, even if it is, the alleged candour and honesty duty is ‘prescriptive’, rather than ‘proscriptive’ as required by the governing authorities. In other words, that this alleged duty is fanciful and thus has no real prospects of being established at trial.
Before considering that issue of principle, it is necessary to consider an anterior issue raised by Ms Talintyre, namely, that the promoter allegation is a conclusion alleged without material facts to support it. In the course of oral argument, I accepted that this criticism was valid, and the promoter allegation was liable to be struck out on this basis. In response, senior counsel for the RBS defendants expressly stated that they rely on the matters particularised by the plaintiffs in paragraph [85] of the statement of claim in support of their identical promoter allegation.[10] I accepted that statement for the purposes of argument. However, the RBS defendants should file particulars of the promoter allegations in paragraph [20] of the third party notice. This course involves no surprise to Ms Talintyre, as she nevertheless contends that the allegations particularised by the plaintiffs in support of the promoter allegation are insufficient to support it, and her counsel directed submissions to that question during the hearing of her application. I turn to consider that issue.
[10]Transcript, 7 September 2017, page 92. I note also that some of the allegations supporting paragraph [85] of the statement of claim have been pleaded in the third party notice. For example, the allegations against Ms Talintyre in the third party notice expressly include: (1) her role as an employee or agent of BBIPL and BBLP for the purposes of promoting the Coinmach deal as the ‘operational head’ of the Coinmach deal team — third party notice [5]; (2) her role as a director of Spin Holdco — third party notice [5]; and (3) her role in the RBS negotiations — third party notice [7].
It is first necessary to summarise the allegations in the statement of claim which are alleged to support the promoter allegation against all ‘promoter defendants’ as defined in paragraph [85] of the statement of claim. The promoter allegation against Ms Talintyre and Spin Holdco must be assessed in this context. The allegations in support of the promoter allegation may be summarised as follows:
(1) Para [3]. The partnership was established for the purpose of investing in ‘transactions originated and promoted’ by the B&B Group.
(2) Paras [5(a)], [5(d)] and [5(e)(i)]. By a private placement memorandum, issued by the Manager,[11] the Manager represented to investors in the partnership that:
[11]Statement of claim [4].
(a) the partnership proposed raising U$350 million of equity capital to invest in B&B Group’s global investment platform;
(b) ‘the Manager would be supported by the larger B&B Group organisation and would “utilise shared resources, including those in investment due diligence”’;[12] and
[12]Statement of claim [5(d)].
(c) ‘investment opportunities would be originated by a B&B Group project team which would submit a brief summary of the project to the Manager’.[13]
[13]Statement of claim [5(e)(i)] (emphasis added).
(3) Para [17]. BBIPL was at all relevant times ‘the principal global operating and asset owning entity in [the] B&B Group’.
(4) Para [18]. BBLP was at all relevant times wholly owned and controlled by BBIPL and ‘the principal operating and asset owning entity for the United States within the B&B Group’.
(5) Para [21(e)]. There was at all relevant times a group of senior executives and officers of the B&B Group who provided strategic direction, had delegated authority to deploy capital and had oversight of the administration and operations of the B&B Group as a whole (the Executive Committee).
(6) Para [20(f)]. At all relevant times, there was a group of employees or agents of BBLP and/or BBIPL which, under the supervision and management of the B&B Group Executive Committee ‘originated and promoted an equity investment in Coinmach’ (the Coinmach Deal Team and the Coinmach Deal).[14]
[14]Emphasis added.
(7) Para [20]. Mr Topfer was a member of the Executive Committee and the Coinmach Deal Team. In addition, he was a director of the General Partner, BBLP, and the Manager; the Global Head of Corporate and Structured Finance for the B&B Group; and a member of the Manager’s Investment Committee.
(8) Para [21]. Mr Green was at all relevant times the CEO of the B&B Group; a director of BBIPL, BBIH and of the Manager; chair of the Executive Committee and a member of the Investment Committee.
(9) Para [25]. Mr Umbrecht was at all relevant times a member of the Coinmach Deal Team, a member of the Executive Committee, the ‘US Head of Special Products for the B&B Group’ and a director of Spin Holdco.
(10) Para [28]. Ms Talintyre was at all relevant times the ‘operational head of the Coinmach Deal Team’, an employee or agent of BBIPL and BBLP, and a director of Spin Holdco.
(11) Para [29]. Spin Holdco was the holding company through which investors in the Coinmach Deal would acquire Coinmach.
(12) Para [31]. BBLP and BBIPL, acting ‘through the Coinmach Deal Team’ identified the Coinmach Deal as a desirable investment (for reasons including fees payable to the B&B Group and raising the Group’s profile in the North American market; and identified the partnership as an investor in the Coinmach Deal. A memorandum from Ms Talintyre to Mr Topfer is particularised as recording such identifications. That email was not before the Court on the hearing of the applications.
(13) Para [33]. The Coinmach Deal Team, acting on behalf of BBLP and/or BBIPL, negotiated the Equity Commitment Agreement described in my earlier reasons, including the terms requiring fees payable to BBLP if the transaction proceeded, the incorporation of Spin Holdco as the corporate vehicle to acquire Coinmach if the Coinmach Deal was completed, and a cancellation fee payable by BBLP and/or BBIPL if it did not.
(14) Para [52]. In consequence of RBS concluding that the value of Coinmach had deteriorated below the purchase price in the Coinmach Deal, RBS made the RBS Proposal. In summary, it offered to pay the whole of the cancellation fee due by BBLP if the Coinmach Deal did not complete. The RBS proposal was made ‘through’ Topfer, Umbrecht and Talintyre.[15]
(15) Para [57]. The RBS Proposal, the counteroffer and the RBS Preference Agreement were known to Green, Topfer, Umbrecht and Talintyre.
(16) Para [58]. On 20 September 2007, the Coinmach Deal Team sought confirmation from the Manager that the partnership was in a position to fund a US$35 million commitment to the Coinmach Deal by the end of October (which I note is the same amount forming part of the escrow arrangements under the RBS Preference Agreement).
[15]By particulars provided recently, the plaintiffs have particularised the RBS Proposal as having been made orally on about 23 August 2007 by an RBS representative to Mr Green.
Ms Talintyre submits that these paragraphs of the statement of claim are not sufficient to support the conclusion that Ms Talintyre personally promoted an investment in the Coinmach Deal to the partnership. I do not accept that submission. The facts alleged to support the promoter allegation are clearly sufficient to support the allegation that BBIPL and/or BBLP, through their employees and agents, promoted investment in the Coinmach deal to the partnership. The employees and agents include Messrs Topfer, Green and Umbrecht, and Ms Talintyre. My reasons follow.
In Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd,[16] Gummow J noted that the term ‘promoter’ has been used by the High Court ‘in respect of those who get up and start trading partnerships’,[17] and then addressed what his Honour described as the ‘more difficult question’ of ‘what is a promoter?’[18] His Honour traced a number of the authorities and, with apparent approval, quoted the remarks of Lindley LJ (as he then was) in an earlier case that:
the word ‘promoter’ is ambiguous, and it is necessary to ascertain in each case what the so-called promoter really did before his legal liabilities can be accurately ascertained. In every case it is better to look at the facts and ascertain and describe them as they are.[19]
[16](1987) 78 ALR 193.
[17]Ibid 232; citing United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1, 5–6.
[18]Ibid 232.
[19]Ibid 233; quoting Lydney and Wigpool Iron Ore Co v Bird (1886) 33 Ch D 85, 93–4 (Lindley LJ).
Later, Gummow J referred with approval to the statement by Bowen J (as he then was) in another case, as follows:
The term promoter is a term not of law, but of business, usefully summing up in a single word a number of business operations familiar to the commercial world by which a company is generally brought into existence … what is to be looked to is not a word or name, but the acts and the relations of the parties.[20]
[20]Ibid 234; citing Whaley Bridge Calico Printing Co v Green (1879) 5 QBD 109, 111 (Bowen J).
Gummow J concluded:
The end result is that although undoubtedly once identified as a promoter the defendant is ipso facto stamped as a fiduciary, the process required in order to identify him as such in most cases probably will differ very little from that involved in deciding whether, independently of any acknowledged category of fiduciary, the defendant was in the circumstances of the case a fiduciary and, if so, what were the incidents of his fiduciary duty.[21]
[21]Ibid 234.
In Catt v Marac Australia Ltd,[22] Rogers J referred with approval to the statements of Bacon V-C in another early case that:
without attempting to define it in any more certain manner than the occasion requires, it will be sufficient to consider whether what was undertaken and done by the several Defendants can be referred to any other character than that of promoters … it was the conviction and intention of all the persons engaged or interested in the matter that [the business and property] should be sold to a company. It may be truly said that the sale and the formation of a company formed one complete entire idea.[23]
[22](1986) 9 NSWLR 639.
[23]Catt v Marac Australia Ltd (1986) 9 NSWLR 639, 652; quoting Bagnall v Carlton (1877) 6 Ch D 371, 381–2 (Bacon V-C).
In Catt v Marac, the corporate trustee of investor syndicates had acted as ‘the originator, instigator and sponsor of the project for the acquisition of the [relevant assets], through the medium of the syndicates’.[24] Rogers J held that the trustee’s actions were ‘akin’ to the actions of a promoter;[25] that the trustee thus owed a fiduciary duty to the syndicates;[26] and that the director of the company was also a promoter because ‘his interest [was] completely at odds with that of the partners’ in the syndicate.[27]
[24]Ibid 652.
[25]Ibid 652–3, 657.
[26]Ibid 652–3.
[27]Ibid 653.
Based on these cases, I conclude that the allegations made in support of the promoter allegation are sufficient to support it, pending a full trial of the facts. As the cases discussed above establish, each case must depend upon its own facts. The role of Ms Talintyre as the operational head of the Coinmach Deal Team, in the circumstances alleged, is capable of supporting a case that she was a promoter of the Coinmach Deal to the partnership. Much will depend upon the facts as found at trial. For present purposes, however, it is enough to say that it is not fanciful to suggest that Ms Talintyre may be found to be a promoter after a full examination of the facts. That being the case, the position of Messrs Topfer, Green and Umbrecht must be the same. Indeed, their alleged senior positions within the B&B Group, and the other matters alleged against them, may reveal a greater level of involvement in promotion of the investment to the partnership.
No submissions were directed to the individual position of Spin Holdco. Paragraph [33] of the statement of claim alleges only that it was a term of the Equity Commitment Agreement that Spin Holdco would be incorporated, so that it could act as the vehicle to undertake the investment in the Coinmach Deal if it proceeded. In fact, as Appendix B to my earlier reasons demonstrates, Spin Holdco was not, ultimately, the acquisition company (or merger entity). It was the entity which held the money invested by all investors in the Coinmach Deal — including the partnership, BBIH and other B&B Group entities, RBS Equity and other investors. Spin Holdco was merely an intermediary company, through which the funds invested were held prior to being paid to Spin Acquisition Co to enable the Coinmach Deal to be completed.
In these circumstances, I will hear submissions as to whether the relevant aspects of the third party notice alleging that Ms Talintyre knowingly assisted Spin Holdco to breach its fiduciary duties to the partnership should be struck out.
I conclude that, subject to my comments concerning the allegation that Spin Holdco was a promoter, the promoter allegation is sufficiently supported by material facts.
I turn to consider whether the promoter allegation, if established at trial, is capable of supporting a finding that Ms Talintyre owed fiduciary duties to the partnership. In my opinion, it is. Some of the relevant cases have already been referred to. In Catt v Marac Australia Ltd, Rogers J held that the promoters owed fiduciary duties to the investor syndicates.[28] In United Dominions Corporation Ltd v Brian Pty Ltd,[29] Gibbs CJ accepted that promoters of partnerships, ‘who invite others to join in a partnership’, owed fiduciary duties to the partnership.[30] In Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq),[31] Finkelstein J referred to United Dominions Corporation v Brian in the course of holding that promoters of investments in a unit trust owed fiduciary duties to investors.[32]
[28]Ibid 651–5.
[29](1985) 157 CLR 1.
[30]Ibid 5–6.
[31](2001) 188 ALR 566.
[32]Ibid 575–6 [28]–[30].
Each of these cases imposed fiduciary duties on the promoter because the promotion at issue was analogous to the position of company promoters, who have long been held to owe fiduciary duties.[33] In both United Dominions Corporation v Brian and Fitzwood vUnique Goal,[34] reliance was placed upon the principles stated in Directors of Central Railway Co of Venezuela v Kisch[35] that:
It cannot be too frequently or too strongly impressed upon those who, having projected any undertaking, are desirous of obtaining the co-operation of persons who have no other information on the subject than that which they choose to convey, that the utmost candour and honesty ought to characterize their published statements.[36]
[33]Catt v Marac Australia Ltd (1986) 9 NSWLR 639, 653; Hill v Rose [1990] VR 129, 140–1; Fitzwood Pty Ltd vUnique Goal Pty Ltd (in liq) (2001) 188 ALR 566, 575–6 [28]–[33]; United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1, 5–6.
[34]United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1, 6; Fitzwood Pty Ltd vUnique Goal Pty Ltd (in liq) (2001) 188 ALR 566, 575 [29].
[35](1867) LR 2 HL 99.
[36]Ibid 113 (emphasis added).
In paragraph [21] of the third party notice,[37] the RBS defendants allege that: ‘Ms Talintyre owed the Partnership a fiduciary duty of utmost candour and honesty in relation to her promotion of the Coinmach Deal and the Investment by the Partnership’. Counsel for Ms Talintyre contended that this allegation of a fiduciary duty was bad in law, because it does not expressly allege that Ms Talintyre had an obligation to act in the interests of the partnership. I accept that the High Court has stated fiduciary obligations arise because a person has come under an obligation to act in another’s interests.[38] However, that does not mean that every pleading of a fiduciary obligation must contain an allegation in precisely those words in order to raise an arguable case of fiduciary duty. Each case must depend upon its own facts. It is in my opinion arguable that a person undertakes or assumes a fiduciary duty to act in another’s interests where equity imposes a duty on the person to act with utmost candour and honesty (ie to be open and honest in their dealings) towards the other person. Such a duty may be characterised as one to act in the other person’s interests. In my opinion, the existence of the fiduciary duty which is alleged is not fanciful. Paragraph [21] of the third party notice will not be struck out.
[37]Cf paragraph [86] of the statement of claim.
[38]Breen v Williams (1996) 186 CLR 71, 113; Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165, 198.
I turn to consider Ms Talintyre’s challenge to the content of the alleged fiduciary duties.
Are the formulated fiduciary duties sustainable?
Ms Talintyre contends that paragraph [21] of the third party notice should nevertheless be struck out because it pleads a ‘prescriptive’ and not ‘proscriptive’ duty. Ms Talintyre also seeks to strike out paragraph [23] of the third party notice, which alleges a breach of the prescriptive duty of ‘utmost candour and honesty’.
Paragraph [23] of the third party notice alleges that Ms Talintyre breached her fiduciary duty to the partnership by not disclosing ‘the fact and circumstances of the RBS Negotiations and Escrow Agreements before the Partnership made the Investment’. This pleading differs slightly from paragraph [88] of the statement of claim, which alleges non-disclosure of the RBS Preference Agreement also. I assume that this is because the RBS defendants wish to contend at trial that the RBS Preference Agreement was not concluded until after the partnership had made its investment in the Coinmach Deal.
I am not prepared to strike out paragraphs [21] and [23] of the third party notice. Although the High Court has stated that fiduciary duties ought only be proscriptive in nature,[39] it remains arguable that a positive duty of utmost candour and honesty attaches to persons who owe fiduciary obligations because they are ‘promoters’. Such an approach finds support in the statements of Gibbs CJ in United Dominions Corporation v Brian,[40] Rogers J in Catt v Marac,[41] and Finkelstein J in Fitzwood vUnique Goal.[42] In any event, whether or not the candour and honesty duty is deserving of the equitable label ‘fiduciary duty’, it is established that such a duty applies to promoters in varying contexts; and arguable that it applies here. This position supports the direct allegations of breach of the duty against Ms Talintyre and others; but would not support the knowing assistance allegations.
[39]For example, Breen v Williams (1996) 186 CLR 71, 113; Pilmer v Duke GroupLtd (in liq) (2001) 207 CLR 165, 197–8 [74].
[40](1985) 157 CLR 1, 5–6.
[41](1986) 9 NSWLR 639, 651–5.
[42](2001) 188 ALR 566, 575–6 [28]–[33].
Ms Talintyre contended that the Court should apply the decision of Hollingworth J in P & V Industries Pty Ltd v Porto,[43] where her Honour struck out a pleading alleging that a fiduciary owed a prescriptive duty to disclose past wrongdoing. The case did not involve promotership by the alleged fiduciary, and so her Honour did not refer to, and presumably was not taken to, the cases discussed above.
[43](2006) 14 VR 1.
Ms Talintyre’s summons also seeks to strike out paragraphs [24] to [26] of the third party notice which, in summary, allege breaches by her of proscriptive fiduciary duties not to obtain any unauthorised benefit (for herself or others) from her relationship with the partnership or to place herself in a position where her interests (or those of others) conflict with those of the partnership. These pleadings allege accepted fiduciary duties and breach of those duties. In any event, Ms Talintyre’s written and oral submissions did not contend that, if the allegation of fiduciary duty survived, these paragraphs should be struck out.
I turn to consider the attack by Ms Talintyre on the pleadings against her for accessory liability in respect of breaches of fiduciary obligations by others.
For accessory liability, is it necessary to plead a dishonest and fraudulent breach of fiduciary duty? If so, has that been pleaded?
Ms Talintyre contends that the decision of the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd,[44] requires a claim based on knowing assistance of a breach of fiduciary duty to allege that the fiduciary’s breach amounted to a dishonest and fraudulent design. She contends that such dishonesty has not been pleaded against the fiduciaries whom it is alleged she assisted to breach their fiduciary duties — either in the portions of the statement of claim adopted by the RBS defendants in their third party notice or otherwise in the third party notice.
[44](2007) 230 CLR 89.
I accept that Farah Constructions stands for the proposition advanced by Ms Talintyre. In that regard, I agree with the reasons of Leeming JA (Gleeson JA agreeing) in Hasler v Singtel Optus Pty Ltd[45] in refusing to follow the reasoning of Drummond AJA in Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3)[46] as to the proper interpretation of the High Court’s reasons in Farah Constructions.
[45](2014) 87 NSWLR 609.
[46](2012) 44 WAR 1.
In Westpac v Bell, Drummond AJA (Carr AJA agreeing) interpreted the High Court’s reasons in Farah Constructions as meaning that, for the second limb of Barnes v Addy, it was enough if the fiduciary’s breach was ‘more than a trivial breach and is also too serious to be excusable because the fiduciary has acted honestly, reasonably and ought fairly to be excused’.[47] I find the reasoning of Leeming JA to support his conclusion that Drummond AJA was plainly wrong in this respect to be persuasive and adopt it.[48] I also agree with Leeming JA that, for these purposes, it is unnecessary to say more of the concept of dishonesty than that it ‘amounts to a transgression of ordinary standards of honest behaviour’.[49]
[47]Ibid 381 [2112(c)].
[48]Singtel Optus Pty Ltd v Almad Pty Ltd [2014] 87 NSWLR 609, 630–6 [91]–[125].
[49]Ibid 636 [124].
The question remains as to whether the third party notice alleges (either directly or by the adoption of allegations in the statement of claim) that the fiduciaries who breached their obligations with Ms Talintyre’s alleged assistance did so dishonestly. In my opinion, reading the third party notice and the incorporated portions of the statement of claim as a whole, the necessary element of dishonesty is alleged. This follows from the allegations that Ms Talintyre breached her duty to act with utmost candour and honesty towards the partnership. This is a direct allegation of dishonesty. Moreover, the introductory words to paragraph [99] of the statement of claim allege that Ms Talintyre (and others):
assisted Rob Topfer and Phil Green in their breaches of fiduciary duty for the dishonest purpose of accruing the benefits to the B&B Group entities pleaded in paragraph [90(b)], in the following ways … (emphasis added).
The emphasised words in paragraph [99], when read in the context of the adopted paragraphs of the statement of claim as a whole, relate to the dishonest purpose of Mr Topfer and Mr Green; and not to the purpose of the assistance given by Ms Talintyre, as particularised in paragraph [99(b)] of the statement of claim. The pleader should be taken to have been aware of the legal position, clarified in Farah Constructions,[50] of the elements necessary to establish liability under the second limb of Barnes v Addy.
[50](2007) 230 CLR 89, 159–65 [159]–[185].
Conclusion
For the above reasons:
(1) paragraphs [115] to [118] of the statement of claim should be struck out (under the RBS summons);
(2) paragraph [31] of the third party notice should thus be struck out (under Ms Talintyre’s summons); and
(3) the RBS defendants should file and serve particulars under paragraph [20] of the statement of claim (under Ms Talintyre’s summons).
I will hear from the RBS defendants and Ms Talintyre as to the sustainability of the allegation, which the plaintiff no longer pursues, that Spin Holdco promoted the Coinmach Deal to the partnership. Subject to further orders which may be made on that issue, the two summonses will otherwise be dismissed.
I will hear the parties as to costs, as to whether directions should be given to remove allegations from the statement of claim which are no longer pursued, and as to any consequential directions arising from that course (if adopted).
SCHEDULE OF PARTIES
| DIF III GLOBAL CO-INVESTMENT FUND LP | First plaintiff |
| DIF III GP LIMITED | Second plaintiff |
| BABCOCK & BROWN INTERNATIONAL PTY LIMITED (ACN 108 617 483) | First defendant |
| BABCOCK AND BROWN LP | Second defendant |
| DIF CAPITAL PARTNERS LIMITED | Third defendant |
| ROBERT NEIL TOPFER | Fourth defendant |
| PHILLIP HARTLEY GREEN | Fifth defendant |
| FERGUS JOHN NEILSON | Sixth defendant |
| HARRY NICHOLSON | Seventh defendant |
| ROBERT RUPERT OFFICER | Eighth defendant |
| THE ROYAL BANK OF SCOTLAND PLC | Sixteenth defendant |
| RBS EQUITY CORPORATION | Seventeenth defendant |
| RICHARD UMBRECHT | Twenty-second defendant |
| AND | |
| ALLIANZ AUSTRALIA INSURANCE LTD (ABN 15 000 122 850) | First third party |
| XL INSURANCE COMPANY SE, FORMERLY KNOWN AS XL INSURANCE COMPANY LTD (ABN 36 083 570 441) | Second third party |
| QBE UNDERWRITING LIMITED, A LLOYD’S MANAGING AGENT FOR AND ON BEHALF OF SYNDICATE 1886, A SUB-SYNDICATE OF LLOYD’S SYNDICATE 2999 | Third third party |
| ASPEN INSURANCE UK LTD (ABN 33 128 637 650) | Fourth third party |
| LIBERTY MUTUAL INSURANCE COMPANY TRADING AS LIBERTY INTERNATIONAL UNDERWRITERS (ABN 61 086 083 605) | Fifth third party |
| CERTAIN LLOYD’S UNDERWRITERS COMPRISING MARKEL SYDNICATE 3000 AT LLOYD’S SUBSCRIBING TO CONTRACT NO B80391FD023290G | Sixth third party |
| LONDON AUSTRALIA UNDERWRITING PTY LIMITED ON BEHALF OF NOVAE SYNDICATES LIMITED (SYNDICATE 2007 AT LLOYD’S) (ACN 114 962 435) | Seventh third party |
| HCC INTERNATIONAL INSURANCE COMPANY PLC (COMPANY NO. 01575839) | Eighth third party |
| CHUBB INSURANCE AUSTRALIA LTD, FORMERLY KNOWN AS ACE INSURANCE LTD (ABN 23 001 642 020) | Ninth third party |
| CERTAIN LLOYD’S UNDERWRITERS, SUBSCRIBIGN TO LLOYD’S POLICY NUMBERED FD014280G BEING: 1. BRIT UW LIMITED (THE CORPORATE CAPITAL PROVIDER FOR LLOYD’S SYNDICATE 2987 FOR THE 2008 YEAR OF ACCOUNT); 2. ASPEN INSURANCE UK LIMITED; 3. NOVAE SYNDICATES LTD (ON BEHALF OF SYNDICATE 2007); 4. CHAUCER SYNDICATES LIMITED AS MANAGING AGENT AND ON BEHALF OF THE UNDERWRITING MEMBERS OF SYNDICATE 1084 AT LLOYD’S FOR THE 2008 YEAR OF ACCOUNT; 5. ANTARES MANAGING AGENCY LIMITED AS MANAGING AGENT FOR ANTARES SYNDICATE 1274; 6. QBE UNDERWRITING LIMITED AS MANAGING AGENT FOR AND ON BEHALF OF LLOYD’S SYNDICATE 1886, A SUB-SYNDICATE OF LLOYD’S SYNDICATE 2999; 7. NEWLINE CORPORATE NAME LTD ON BEHALF OF LLOYD’S SYNDICATE 1218 | Tenth third party |
| CERTAIN LLOYD’S UNDERWRITERS, SUBSCRIBING TO LLOYD’S POLICY NUMBERED B0391FD027140H BEING: 1. QBE UNDERWRITING LIMITED ON BEHALF OF THE UNDERWRITING MEMBERS OF LLOYD’S SYNDICATE 1886; 2. NEWLINE CORPORATE NAME LTD ON BEHALF OF THE UNDERWRITING MEMBERS OF LLOYD’S SYNDICATE 1218; 3. ARGO MANAGING AGENCY LIMITED ON BEHALF OF THE UNDERWRITING MEMBERS OF LLOYD’S SYNDICATE 1200; 4. AXIS SPECIALTY EUROPE LTD | Eleventh third party |
| CERTAIN LLOYD’S UNDERWRITERS, SUBSCRIBING TO LLOYD’S POLICY NUMBERED B0391FD027140H BEING: 1. QBE UNDERWRITING LIMITED ON BEHALF OF THE UNDERWRITING MEMBERS OF LLOYD’S SYNDICATE 1886; 2. NEWLINE CORPORATE NAME LTD ON BEHALF OF THE UNDERWRITING MEMBERS OF LLOYD’S SYNDICATE 1218; 3. ARGO MANAGING AGENCY LIMITED ON BEHALF OF THE UNDERWRITING MEMBERS OF LLOYD’S SYNDICATE 1200; 4. AXIS SPECIALTY EUROPE LTD | Twelfth third party |
| BERENICE TALINTYRE | Thirteenth third party |
| SPIN HOLDCO INC | Fourteenth third party |
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