Banks v Galea

Case [2019] FCA 986

FEDERAL COURT OF AUSTRALIA

Banks v Galea [2019] FCA 986

File number: WAD 174 of 2019
Judge: MCKERRACHER J
Date of judgment: 24 June 2019
Catchwords:

CORPORATIONS – claim of misleading or deceptive conduct – where the claim relating to the corporation is sought to be struck out – whether the Court has jurisdiction to entertain the claim as pleaded – whether ‘loss or damage’ is pleaded – whether any oral agreement has been adequately pleaded – where the contract was pleaded to have been entered into prior to the registration of the company – s 131 of the Corporation Act 2001 (Cth) considered

PRACTICE AND PROCEDURE – application to strike out paragraphs of the pleadings – amended statement of claim struck out – leave given to re-plead

Legislation:

Australian Consumer Law, Sch 2 to the Competition and Consumer Act 2010 (Cth) ss 6, 6(3)(a), 18, 131, 131(1), 236

Corporations Act 2001 (Cth) s 131, 131(1)

Fair Trading Act 2010 (WA) s 20(2)

Cases cited: Masters v Cameron (1954) 91 CLR 353
Date of hearing: 10 June 2019
Registry: Western Australia
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Commercial Contracts, Banking, Finance and Insurance
Category: Catchwords
Number of paragraphs: 24
Counsel for the Applicants: Mr MT McKenna
Solicitor for the Applicants: Gilbert + Tobin
Counsel for the Respondent: Mr CS Williams
Solicitor for the Respondent: Solomon Brothers

ORDERS

WAD 174 of 2019
BETWEEN:

AARON PETER BANKS

First Applicant

AUSTRALIAN SILICA PTY LTD ACN 613 775 287

Second Applicant
AND:

MICHAEL GALEA

Respondent

JUDGE:

MCKERRACHER J

DATE OF ORDER:

24 JUNE 2019

THE COURT ORDERS THAT:

1.The further amended statement of claim be disallowed.

2.The amended statement of claim be struck out. 

3.The applicants have leave to file a draft further amended statement of claim within 21 days of these orders.

4.The applicants pay the respondent’s costs of and incidental to the application. 

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

MCKERRACHER J:

OVERVIEW

  1. The first applicant, Mr Aaron Banks is a shareholder and director of the second applicant, Australian Silica Pty Ltd, which operates a business involving the acquisition of mining tenements for exploration and development of silica resources.  The respondent is Mr Michael Galea.

  2. It is claimed Mr Galea represented to Mr Banks that he had expertise in managing mining tenements (the expertise representations), including the process of applying for mining tenure grants.  Further it is claimed that Mr Banks relied on the expertise representations when entering into an oral agreement with Mr Galea to apply for mining tenements in their personal names and then to transfer their shares in the mining tenements to Australian Silica upon incorporation, on terms to be agreed (the Agreement).

  3. It is claimed Mr Banks applied for an exploration licence for a mining tenement (the Tenement licence) in reliance on advice from Mr Galea that he had the expertise to overcome issues in the…

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Details
AGLC
Banks v Galea [2019] FCA 986
Case
[2019] FCA 986
Decision Date

CaseChat Overview and Summary

In the case of Banks v Galea, the plaintiff, Australian Silica, sought relief against the defendant, Mr Galea, for alleged misleading and deceptive conduct. The matter was heard in the Federal Court of Australia, where the plaintiff's claim was initially struck out. The plaintiff subsequently filed an amended statement of claim, which was also subject to a motion to strike out by the defendant. The court had to determine whether it had jurisdiction over the claim as it was pleaded, whether the claim adequately alleged loss or damage, and whether any oral agreement was properly pleaded. Furthermore, the court considered the application of section 131 of the Corporations Act 2001 (Cth) in relation to pre-incorporation contracts.

The court found that the plaintiff's amended statement of claim did not sufficiently plead the material facts necessary for ratification of the alleged oral agreement by Australian Silica. The court held that while the ratification of such an agreement need not be strictly limited, the defendant was entitled to know the specific case he had to meet in relation to the alleged ratification. The court concluded that the deficiencies in the pleading went to the heart of the claim, and it was appropriate to strike out the amended statement of claim, disallow the filing of a further amended statement of claim, and grant leave to re-plead. The court also noted that the plaintiff's claim could be dismissed if it could not be sustained and if the court lacked jurisdiction. The defendant was awarded costs following the event.

The court's decision highlights the importance of adequately pleading material facts, particularly in relation to the ratification of pre-incorporation contracts under section 131 of the Corporations Act 2001 (Cth). The court emphasised that the defendant must be informed of the specific case he has to meet, and that the pleading of ratification should not be limited to mere conclusions. The court also underscored the need for the plaintiff to consider the sustainability of its claim and the court's jurisdiction before re-pleading.

ORDERS:
1. The further amended statement of claim be disallowed.
2. The amended statement of claim be struck out.
3. The applicants have leave to file a draft further amended statement of claim within 21 days of these orders.
4. The applicants pay the respondent’s costs of and incidental to the application.

Orders

Orders of the court

1. The further amended statement of claim be disallowed.

2. The amended statement of claim be struck out.

3. The applicants have leave to file a draft further amended statement of claim within 21 days of these orders.

4. The applicants pay the respondent’s costs of and incidental to the application.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Even if it can be inferred, which as I have indicated I do not accept, that it was made clear that the oral contract was for the benefit of Australian Silica rather than the individuals, the pleading that the oral agreement was thereafter ratified is no more than a statement of a conclusion. The form of the ratification should be pleaded by way of identification of the material facts. I do not intend to suggest that the means by which ratification can be made are necessarily strictly limited, but what is clear, in my view, is that Mr Galea is entitled to know the case he has to meet in relation to ratification of the oral agreement by Australian Silica. CONCLUSION For all those reasons, Mr Galea is entitled to relief substantially in the terms sought. I consider that as these deficiencies go the heart of the pleading, the better course is that the amended statement of claim as a whole be struck out, the FAS be disallowed and leave be given to re-plead. I would not at this stage dismiss the claim brought by Australian Silica, but on a re-pleading of the further statement of claim, the applicants should take into account whether Australian Silica’s claim can be sustained and whether the Court has jurisdiction. Mr Galea is clearly entitled to costs following the event.

Ratio Decidendi

Legal Principle Established

The legislation concerning pre-incorporation contracts arose because at common law a company could not be party to a contract purportedly entered into by or for it, prior to its incorporation and any purported ratification by the company in those circumstances would be ineffective. Section 131 relevantly provides:131 Contracts before registration(1)If a person enters into, or purports to enter into, a contract on behalf of, or for the benefit of, a company before it is registered, the company becomes bound by the contract and entitled to its benefit if the company, or a company that is reasonably identifiable with it, is registered and ratifies the contract:(a)within the time agreed to by the parties to the contract; or(b)if there is no agreed time—within a reasonable time after the contract is entered into.… Section 131(1) of the Corporations Act will then create a binding contract in certain circumstances and contingent upon certain requirements being satisfied. The first is that ‘a person enters into, or purports to enter into, a contract on behalf of, or for the benefit of, a company’. The second is that this occurs before that company is registered. The third is that ‘the company, or a company that is reasonably identifiable with it’, must subsequently be registered. Fourthly, the company, or a company that is reasonably identifiable with it, must then ratify the contract within the time agreed to by the parties to the contract or within a reasonable time after entry into the pre-incorporation contract. Even if it can be inferred, which as I have indicated I do not accept, that it was made clear that the oral contract was for the benefit of Australian Silica rather than the individuals, the pleading that the oral agreement was thereafter ratified is no more than a statement of a conclusion. The form of the ratification should be pleaded by way of identification of the material facts. I do not intend to suggest that the means by which ratification can be made are necessarily strictly limited, but what is clear, in my view, is that Mr Galea is entitled to know the case he has to meet in relation to ratification of the oral agreement by Australian Silica. CONCLUSION For all those reasons, Mr Galea is entitled to relief substantially in the terms sought. I consider that as these deficiencies go the heart of the pleading, the better course is that the amended statement of claim as a whole be struck out, the FAS be disallowed and leave be given to re-plead. I would not at this stage dismiss the claim brought by Australian Silica, but on a re-pleading of the further statement of claim, the applicants should take into account whether Australian Silica’s claim can be sustained and whether the Court has jurisdiction. Mr Galea is clearly entitled to costs following the event.