Beach Petroleum NL v Johnson

Re: BEACH PETROLEUM NL and CLAREMONT PETROLEUM NL
And: MALCOLM KEITH JOHNSON; MICHAEL JOHN FULLER; CHRISTOPHER PAUL McDONALD
MAIN; JOSEPH PATRICK CUMMINGS; FIRSTWAY LIMITED; JINGELLIC MINERALS NL;
SPARGOS MINING NL; ENTERPRISE GOLD MINES NL; INDEPENDENT RESOURCES LTD and
INDEPENDENT RESOURCES (ASIA) GROUP PTY LTD
No. G53 of 1991
FED No. 839
Practice and Procedure
(1991) 105 ALR 456

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
Von Doussa J.(1)

CATCHWORDS

Practice and Procedure - pleadings - strike-out application - whether reasonable causes of action - distinction between material facts and particulars - whether statements of material fact appearing under the heading of "Particulars" should be read as part of the pleading - whether facts alleging economic loss intentionally caused by dishonest means pleads a tenable cause of action.

HEARING

ADELAIDE

#DATE 20:12:1991

Counsel for the Applicants: Mr J.R. Sulan QC with Mr C.N.H. Bagot

Solicitor for the Applicants: Piper Alderman

Counsel for the seventh Respondent: Mr S. Archer QC

Solicitor for the seventh Respondent: Finlaysons

ORDER

The notice of motion stand adjourned with liberty to the applicants to further amend the amended statement of claim in light of these reasons for decision within 28 days.

The question of costs be reserved.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This is an application by the seventh-named respondent Spargos Mining NL ("Spargos") pursuant to O.11, r.16(a) of the Federal Court Rules to strike out paragraphs 86D, 90, 91A, 91B, 92, 93, 94, 97, 97A, 97B, 97C, 97D, 97E, 106 and 108 of the amended statement of claim on the ground that they do not disclose a reasonable cause of action against Spargos.

In these proceedings the applicants claim wide ranging relief on a variety of grounds against the respondents in respect of loss and damage arising out of the acquisition in the name of Beach Petroleum NL ("Beach") of certain interests in the Burbank Oil Field in Oklahoma in the United States of America.
The structure of the statement of claim is as follows. Paragraphs 1 to 74 describe the companies, company directors, and other entities and persons said to be involved in one way or another in transactions concerning the Burbank oil interests; describe a chain of transactions whereby the Burbank oil interests came to be acquired by the first applicant, Beach; and describe the manner in which payment for those interests occurred. Then in paragraphs 75 to 103 causes of action under eight separate heads are pleaded against some or all of the respondents. Finally in paragraphs 104 to 109 specific relief is claimed against the respondents or some of them.
It is necessary for an understanding of the arguments advanced by Spargos on the notice of motion to refer in detail to the case pleaded by the applicants. Beach, Claremont Petroleum NL ("Claremont"), Spargos, Jingellic Minerals NL ("Jingellic"), Enterprise Gold Mines NL ("Enterprise") and Independent Resources Ltd ("IRL") are each companies listed on the Australian Stock Exchange: statement of claim, paras 1, 2, 9-12. Independent Resources (Asia) Group Pty Ltd ("IRAG") is a subsidiary of IRL: para 13. At all material times between September 1988 and March 1990 Beach, Claremont, Jingellic, Enterprise and Spargos were subsidiaries of IRL within the meaning of s.7 of the Companies (South Australia) Code: para 14. Firstway Limited ("Firstway") and Mazeley Limited ("Mazeley") are companies incorporated on 4 October 1988 and 20 September 1988 respectively according to the laws of Liberia: paras 3 and 4. Burbank Petroleum Company ("BPC") is a company incorporated according to the laws of the State of Colorado in the United States of America: para 5, and Burbank Oil and Gas Company Limited ("BOG") is a company incorporated in the Bahamas: para 6. At all relevant times all the issued capital of BPC and BOG was held by Mazeley: para 7. Prior to 30 June 1989 Firstway owned and controlled Mazeley: para 8.
The respondents Michael John Fuller ("Fuller") and Joseph Patrick Cummings ("Cummings") were at relevant times directors of Beach, Claremont, Enterprise, Jingellic, Spargos, IRL and IRAG; the respondent Christopher Paul McDonald Main ("Main") was a director of Beach, Claremont, Enterprise and Spargos: para 15-18. Malcolm Keith Johnson ("Johnson") was a person, at least between 1 June 1988 and 30 March 1990, in accordance with whose directions or instructions a majority of the directors of Beach, Claremont, Jingellic, Enterprise, Spargos, IRL and IRAG were accustomed to act and by reason of s.5 of the Companies (South Australia) Code Johnson owed fiduciary duties to those companies as if he had been a duly appointed director: paras 19 and 20. It is also alleged that between June 1988 and April 1990 Firstway, Mazeley, BPC and BOG acted in accordance with the directions or instructions of Johnson and or agents of Johnson: para 21. The statement of claim goes on in paras 23 to 25 to identify other entities under the control of Johnson and to allege facts to the effect that Firstway was owned beneficially for Johnson and members of his family.
Prior to 31 August 1988 McKenzie Management Inc. ("McKenzie"), an Oklahoma company, acquired from a number of other entities interests equalling 51 per cent of the North Burbank unit and 63.7 per cent of the South Burbank unit of the Burbank oil lease granted in 1950 by the Osage Indians over land held by them in Oklahoma: paras 26 to 28. On 31 August 1988 McKenzie entered into an agreement to sell BPC those interests ("the first McKenzie interests") for US$3 million on terms that US$150,000 earnest money would be paid within two weeks, and the balance within six weeks: para 29. On 12 September 1988 Fuller, on behalf of IRL, recommended in writing to Claremont that Claremont pay US$150,000 in order to secure "in effect a first option" over the first McKenzie interests: para 30. On 13 September 1988 Claremont paid that amount to agents acting for BPC: para 31. On 14 September 1988 BPC resolved that as at 8 September 1988 the whole of the issued capital of BPC be allotted to Mazeley upon the payment of $100: para 32. On 20 September 1988 Mazeley was incorporated in Liberia and that day issued and allotted one bearer share: para 33. On dates unknown to the applicants Mazeley became entitled to be the beneficial owner of the whole of the issued capital of BPC and Firstway obtained possession and control of the Mazeley bearer share: paras 34 and 35. On 12 October 1988 Claremont remitted the sum of US$2.95 million dollars to solicitors for BPC as the balance of the sum payable under the August agreement for the first McKenzie interests: para 36.
Between 11 October 1988 and 28 June 1989 Claremont advanced BPC and BOG approximately US$600,000 which was used by BPC and BOG to purchase a further approximately 10 per cent of the Burbank oil leases ("the second McKenzie interests"): para 40.
It is alleged that by reason of the payments of US$150,000, US$2.95M and US$600,000 made by Claremont to agents of BPC and BOG, the issued shares in BPC and BOG were held by Mazeley on behalf of and in trust for Claremont, or that the issued capital in Mazeley was held by Firstway on behalf of and in trust for Claremont. In the alternative it is alleged that the payments by Claremont were payments to BPC and BOG in consideration of BPC and BOG granting to Claremont an option to purchase the McKenzie interests. In the further alternative it is alleged that the payments by Claremont comprised amounts loaned by Claremont to BPC and BOG for the purpose of BPC and BOG acquiring the McKenzie interests: paras 37-39, 41-43.
It is then alleged, in para 44, that on a date unknown to the applicants but prior to 30 June 1989 Claremont assigned the first and second McKenzie interests to Beach. That plea is to be understood against the background that prior to 30 June 1989 Claremont and Beach were under the control of boards, which included the Fuller, Cummings and Main. These people are no longer directors of the applicants, which are now under the control of differently constituted boards.
Between 13 September 1988 and 19 April 1989 Claremont paid to Firstway or Mazeley or BPC or companies associated with them US$8,197,494 ("the US$8.197M sum") including the sums of US$150,000 and US$2.95 million already referred to: para 45.
On 29 June 1989 Fuller, Cummings and Main as directors of Beach and Claremont, and Johnson as a deemed director of both companies ("the respondent directors of Beach and Claremont"), caused Beach and Claremont to enter into an agreement with Firstway ("the Charge and Option Agreement"). The Charge and Option Agreement provided that in consideration of the advance by Beach of the US$8.197M sum Firstway granted to Beach a charge over the issued capital of Mazeley (which through BPC and BOG were the holders of the first and second McKenzie interests), and the option to purchase the same for US$28 million less the US$8.197 sum. The option was to expire on 31 July 1989: para 48. After minor variations to the Charge and Option Agreement (para 49), by notice dated 30 June 1989 the respondent directors of Beach caused Beach to exercise the option: paras 50 and 51.
The respondent directors of Beach then caused the following payments to be made to Firstway as part of the consideration for the exercise of the option:

(a) the US$8.197M sum by authorising the appropriation of that amount by Firstway as part of the option exercise price;

(b) US$3.989 million by Beach from its own cash resources;

(c) US$10,428,987 being funds paid directly by Spargos, Enterprise and Jingellic to Firstway as follows:

Spargos US$1,582,808.

Enterprise US$5,741,785.

Jingellic US$3,104,394.

It is alleged that the conduct of Fuller, Cummings, Johnson and Main in causing these payments to be made to Firstway was carried out with the knowledge and approval express or implied of Spargos, Enterprise, Jingellic, IRL and IRAG: para 53A. Between July 1989 and 19 January 1990 as a further part of the consideration for the exercise of the option it is alleged that the respondent directors of Beach caused further payments totalling US$4,743,800 to be paid to Firstway.
The pleadings then make allegations about the use of the purchase moneys for the benefit of IRL and IRAG. In particular the amount of US$10,428,987 paid directly by Spargos, Enterprise and Jingellic to Firstway was deposited with a Zurich banker, Rahn and Bodmer, in the names of Spargos, Enterprise and Jingellic, and the moneys were used by those three companies to secure loans made by Rahn and Bodmer to IRL and IRAG in contravention of s.230 of the Companies (West Australia) Code: para 55. On or about 3 July 1989 Firstway caused the said sum of US$10,428,987 and the further sum of US$3.989M which was paid by Beach from its own cash resources, being funds also held at Rahn and Bodmer, to be transferred to Firstway's own account in Rahn and Bodmer: para 56. On 14 September 1989 in consideration of the transfers of these moneys by Firstway to its account, Rahn and Bodmer continued to lend to each of IRL and IRAG amounts of A$9,822,960.32 together with interest from 1 July 1989: para 57. Firstway and or IRL and or IRAG obtained a benefit through the use made of the purchase moneys paid on the exercise of the Charge and Option Agreement (para 60) and did so to the knowledge of Fuller, Cummings, Main and Johnson who were directors and deemed director of IRL: paras 58 and 59.
On 19 October 1989 the respondent directors of Beach caused Beach to enter into the Syndicated Cash Advance Facility Agreement ("the SCAFA") with Spargos, Jingellic and Enterprise. The SCAFA provided that the previously mentioned sum of US$10,428,987 which had been paid directly by Spargos, Enterprise and Jingellic to Firstway was deemed to be advanced upon terms and conditions of the SCAFA; that Beach was required to execute certain security documents securing the moneys advanced ("the security documents"); and that Beach pay to Jingellic, Spargos and Enterprise an equivalent sum and interest thereon (paras 61 and 62). On 5 December 1989 the respondent directors of Beach caused Beach to give the security documents in the terms required by the SCAFA: para 63-65.
Under the SCAFA it is alleged that the respondent directors of Beach caused Beach to make a series of repayments from 7 July 1989 to 7 January 1991 totalling in excess of $11 million: para 66.
From 30 June 1990 the moneys advanced under the SCAFA were due for repayment on demand. Paragraphs 67 to 74 of the statement of claim allege that demand was made in January 1991 which led to the execution of Heads of Agreement between Beach, Jingellic and Enterprise. This part of the statement of claim does not concern Spargos.
That completes the recital of the historical background. The statement of claim then purports to formulate causes of action against the respondents based on the foregoing facts.
Paragraphs 75 to 84 concern the Charge and Option Agreement, and the exercise thereof. Paragraph 75 alleges that the respondent directors of Beach and Claremont caused Beach and Claremont to enter into the agreement and Beach to exercise the option. At the time of the exercise, it is alleged that the true value of the assets acquired by Beach on the exercise of the option was in the order of US$3.6 million: para 76. Fuller, Cummings, Main and Johnson knew that the first and second McKenzie interests had been acquired for a total consideration of approximately US$3.6 million by BPC and BOG, and that the true value of the assets acquired by Beach was in the order of $3.6 million: paras 78-81. Paragraph 77 alleges that before causing Beach to enter into the Charge and Option Agreement Fuller, Cummings, Main and Johnson failed to undertake proper or reasonable due diligence in respect of Mazeley, BPC, BOG and the Burbank interests, failed to obtain any proper or adequate valuation, and failed to obtain any proper or adequate independent advice as to the merit or structure of the transaction: para 77.
Paragraph 83 pleads that the respondent directors of Beach and Claremont in causing Beach to exercise the option and pay the consideration acted dishonestly, fraudulently, in breach of fiduciary duty, in breach of s.229 of the Companies Code, with the intention of depriving Beach of the difference between the option exercise price of US$28 million and the true value of Mazeley's beneficial interest in the Burbank oil fields, and with the intention of making available some or all of the funds comprising the over value for the benefit of Firstway and or IRL and or IRAG and or Johnson: para 83. It is further alleged that Johnson and Firstway counselled and procured the respondent directors of Beach and Claremont to so act: para 84.
Paragraphs 85 and 86 concern, inter alia, the SCAFA. Paragraph 85 alleges that the respondent directors of Beach caused Beach to enter into SCAFA and the security documents, and to make repayments thereunder, dishonestly, fraudulently, in breach of fiduciary duty, in breach of s.229 of the Code, and with the intention of rendering Beach liable to pay the amount of $10,428,987 which Spargos, Enterprise and Jingellic had paid direct to Firstway.
Then commence the paragraphs which allege causes of action against Spargos and others, and about which Spargos complains that no reasonable cause of action is disclosed against it.
Paragraph 86D
The first paragraph sought to be struck out is para 86D which appears with paras 86A, 86B and 86C under a heading "Fraud on Behalf of Jingellic, Spargos and Enterprise". Paragraph 86A alleges that by reason of matters earlier pleaded Jingellic, Spargos and Enterprise were aware that the first and second McKenzie interests had been acquired for $3.6 million by BPC and BOG, that was their true value, and that Beach had been caused to agree to pay $28 million for those interests pursuant to the Charge and Option Agreement and its exercise. Paragraph 86B pleads that with this knowledge Jingellic, Spargos and Enterprise advanced the amount of US$10,428,987 to Firstway purportedly on behalf of Beach, entered into the SCAFA and the security documents, and accepted the repayments under the SCAFA. Paragraph 86C relates to the Heads of Agreement and does not concern Spargos. The impugned para 86D then provides:

"86D. By reason of the foregoing, Jingellic, Spargos and Enterprise acted:

86D.1 dishonestly; and/or

86D.2 fraudulently; and/or

86D.3 with the intention of depriving Beach of the funds equivalent to those which they had advanced to Firstway; and/or

86D.4 with the intention of depriving Beach of the difference between the option exercise price of US$28 million and the true value of Mazeley's beneficial interest in the Burbank oil fields namely a sum in the order of US$3.6 million; and/or

86D.5 with the intention of making available some or all of the funds comprising the over value referred to in paragraph 86D.4 for the benefit of Firstway and/or IRL and/or IRAG and/or Johnson."

The first complaint is that the opening words, "By reason of the foregoing", do not clearly disclose which of the many foregoing paragraphs are relied on. Counsel for Spargos, Mr Archer QC, says the reference is probably to paras 86A to 86C but this is not clear. I agree this is a matter that requires clarification, but is not a strike-out point.
The next complaint is that although the pleading appears under the heading "Fraud on behalf of Jingellic, Spargos and Enterprise", there is no plea that by reason of the conduct alleged the applicants suffered any loss or damage: therefore no cause of action in fraud is properly pleaded. Loss and damage is specifically pleaded in later sections of the statement of claim concerning misleading and deceptive conduct and conspiracy. There appears to be an oversight in the drafting in failing to allege loss and damage caused by the fraudulent conduct alleged in this part of the pleadings (and also, I note, in relation to the allegations of fraud earlier made against the respondent directors of Beach and Claremont in paras 75-86). As the pleadings presently stand the deficiency identified by Spargos exists but it is one that the applicants should be permitted to remedy by amendment.
Further, Spargos complains that para 86D does not plead a claim of fraud with the requisite "distinctness and precision" which a plea of fraud requires: Lawrance v Lord Norreys (1890) 15 App Cas 210 at 219 per Lord Herschell. Objection is raised to the plea that Spargos acted "dishonestly". It is submitted that the dishonesty is not a common law or equitable concept and has no place in a statement of claim alleging fraud. I do not agree. Dishonesty is the characteristic of behaviour which is fraudulent. Where a claim is framed in deceit, fraud will be proved where it is shown that a false representation has been made knowingly, or without belief in its truth, or recklessly, careless whether it be true or false. Lord Hershell in Derry v Peake (1889) 14 App Cas 337 at 374 observed:

"To prevent a false statement being fraudulent, there must, I think, always be an honest belief in its truth."

Honesty or dishonesty as to the making of the representation is central. See also Bullen and Leake and Jacobs, Precedents of Pleadings, 13th ed., pp 425-426. The pleading in para 86D that the companies acted "dishonestly and/or fraudulently" may be tautologous, but it cannot be said that the inclusion of the plea of dishonesty has no place in a statement of claim alleging fraud.

Counsel next directed attention to the allegations contained in sub-paras 86D.3, 86D.4 and 86D.5 which plead that the companies acted with the intentions there stated. It is submitted that none of these sub-paragraphs have anything to do with a claim in fraud; that they are simply colour or irrelevant surplusage. As I understood the submissions on para 86D, it was contended that a plea of "fraud" must be understood as a plea of an action in deceit, and this contention led into another, that the paragraph fails to allege a representation. If para 86D were intended to plead a claim in deceit I would agree with these submissions. A cause of action in deceit is made out on proof that a wilfully false statement was made with the intention that it should be acted upon by the plaintiff, and that it was acted upon by the plaintiff to his or her detriment. It is not a necessary ingredient to the cause of action that an intention to cheat or to injure be proved: Derry v Peake at 374, Bradford Third Equitable Benefit Building Society v Borders (1941) 2 All ER 205 at 211.
If para 86D is intended to plead a cause of action in deceit, it is defective as it fails to plead necessary material facts upon which the cause of action is based, and pleads irrelevant facts which would have the potential to cause embarrassment.
However, I do not understand para 86D to be pleading deceit. On the contrary I think it is pleading a quite different cause of action, the material elements being that the defendant acted dishonestly (i.e. fraudulently) and with intent to injure (i.e. obtain a financial advantage to the prejudice of the plaintiff), and that the defendant's actions in fact cause loss and damage to the plaintiff. At present the pleading fails to allege loss and damage, but that is an omission which can be readily cured by amendment. The question is whether, assuming an allegation of loss and damage, a cause of action known to law would be made out upon proof of these elements. The loss alleged elsewhere in the statement of claim in support of other causes of action is economic loss. The traditional causes of action which protect proprietary interests provide no such remedy. Although the conduct postulated is deliberate it involves no trespass to goods. Nor is there any interference with possession of a chattel - even a piece of paper - which would provide a remedy in detinue or trover. Offences such as obtaining a pecuniary advantage by deception or fraud have been enacted in the criminal law but penal statutes do not necessarily attract civil consequences, and para 86D does not purport to plead a cause of action based on statute.
The law of torts has recognised a cause of action for damages if a person wilfully does an act "calculated" to cause physical harm to another and thereby infringe that person's legal right to personal safety, and in consequence causes physical harm including mental distress: Williamson v Downton (1897) 2 QB 57 at 58-59. It would be a small step to extend that principle to allow an action for damages against a person who wilfully does an act calculated to cause economic harm to another, and in consequence causes economic loss of the kind intended. But that step was rejected in Allen v Flood (1898) AC 1 although it was by then established that a malicious interference, without lawful justification, with existing contractual relations was an actionable wrong: Lumley v Gye (1853) 2 E and B 216 (118 ER 749) and, more recently, see J.T. Stratford and Son Ltd. v Lindley and Anor (1965) AC 269. In Rookes v Barnard (1964) AC 1129 the House of Lords upheld the existence of an action for damages for the tort of intimidation, that is for coercion of a person by unlawful threats into doing or abstaining from doing something which that person would otherwise have the right to do. Professor Fleming in the Law of Torts, 7th Edit. at pp 660-664 treats these developments in the law of torts as but instances of the emergent and more general tort of unlawful interference with economic interests.
The pleading in para 86D is that the respondents acted dishonestly or fraudulently with intent to injure. It is clearly arguable that fraudulent conduct constitutes an unlawful interference: cf. McKinnon v F.W. Woolworth Co. Ltd. (1968) 70 DLR (2d) 280. I consider it is open to the applicants to contend that the conduct alleged gives rise to a cause of action for unlawful interference with economic interests.
Subject to loss and damage being pleaded, and on the footing that the expression "By reason of the foregoing" includes at least the material facts pleaded in paras 86A and 86B, I do not consider the cause of action pleaded in para 86D, is so untenable that it could not possibly succeed: General Steel Industries Inc. v Commissioner of Railways (NSW) (1964) 112 CLR 125 at 130.
As I understood the submissions of Mr Sulan QC, counsel for the applicants, it was intended that para 86D plead such a case, not a case in deceit. Counsel said: (transcript pp 316-317) "in a nutshell, the applicants' case is that there were common directorships... (T)he fraud that is alleged is that in conducting the business of Beach, the directors of Beach misused the funds of Beach, knowingly, dishonestly and with the intention of depriving Beach of its funds... It is then alleged that by reason of the foregoing Jingellic, Spargos and Enterprise acted dishonestly, fraudulently, with the intention of depriving Beach of the difference in those funds (i.e. the difference between US$28M and US$3.6M) and with the intention of making the funds available to IRL, IRAG, Firstway and/or Johnston."
There is another difficulty with para 86D as it presently stands. It does not plead the cause of action relied on by the applicants in precisely the terms expressed by Mr Sulan. The difficulty arises from the use of the expression "and/or" between each of the sub-paragraphs. To make out a tenable cause of action para 86D will also require amendment to plead that Jingellic, Spargos and Enterprise acted dishonestly and fraudulently and with one or other of the intentions thereafter specified.
Paragraph 90.
This paragraph, and the one which follows, read:

"90. By causing Beach:

90.1 to purportedly borrow part of the consideration for the option and its exercise namely the sum of US$10,428,987.00; 90.2 to enter into the SCAFA;

90.3 to enter the security documents;

90.4 to make repayments under the SCAFA;

90.5 to enter the Heads of Agreement;

Fuller, Main, Cummings, Johnson, Firstway, Jingellic, Enterprise and Spargos engaged in conduct which was misleading and/or deceptive (in relation to Beach) and/or contrary to Section 57

(sic) of the Fair Trading Act 1989 and to Section 52 of the Trade Practices Act.

PARTICULARS OF REPRESENTATIONS

By reason of the conduct referred to in this paragraph Fuller, Main, Cummings, Johnson, Firstway, Jingellic, Enterprise and Spargos impliedly represented that:

90.6 the acquisition of Mazeley in the manner and for the price set out in paragraphs 47-52 inclusive ("the transaction") was a bona fide transaction in the interests of Beach; and 90.7 the transaction was in accordance with the proper exercise of the fiduciary duties of Fuller, Main, Cummings and Johnson towards Beach; and

90.8 the borrowing of the sum of US$10,428,987.00 was a bona fide transaction in the interests of Beach.

PARTICULARS OF OMISSIONS

Fuller, Main, Cummings, Johnson, Firstway, Jingellic, Spargos and Enterprise:

90.9 failed to disclose that the transaction was for the benefit of IRL and IRAG as borrowers from Rahn and Bodmer when they and each of them had a duty to Beach to disclose or not to conceal the same; and/or

90.10 failed to disclose that a purpose of the transaction was to rectify a breach by Jingellic, Enterprise and Spargos of Section 230 of the Companies Code when they and each of them had a duty to Beach to disclose or not to conceal the same; and/or

90.11 failed to disclose that the purpose of the transaction was to ensure that Jingellic, Enterprise and Spargos would be repaid at the expense of Beach moneys equivalent to those placed by Jingellic, Enterprise and Spargos on deposit with Rahn and Bodmer to secure loans to IRL and IRAG when they and each of them had a duty to Beach to disclose or not to conceal the same; and/or 90.12 failed to disclose that the lending transaction was for the benefit of Jingellic, Enterprise and Spargos and that the transaction had no benefit for and was detrimental to Beach and/or was part of a fraudulent scheme to defraud Beach when they and each of them had a duty to Beach to disclose or not to conceal the same.

91. The implied representations and omissions referred to in paragraphs 90.6, 90.7, 90.8, 90.9, 90.10, 90.11 and 90.12 were false and misleading and Fuller, Main, Cummings and Johnson caused Beach to act as if the said representations were true.

The reference to s.57 of the Fair Trading Act 1989 is an error. It should be a reference to s.56 and requires amendment (a similar amendment to para 87 also).
Mr Archer contends that para 90 fails to disclose a reasonable cause of action on two grounds. First it fails to plead as a material fact that the conduct complained of was in trade or commerce, a necessary fact to bring the conduct within the purview of either statutory provision. This omission is conceded by the applicants and requires amendment.
Mr Archer further contends that the pleading is deficient in that it does not allege as a material fact that the conduct complained of was of a character which misleads or deceives or is likely to mislead or deceive persons in their capacity as consumers of goods and services. Counsel acknowledges that in Bevanere Pty Ltd v Lubidineuse and Others (1985) 7 FCR 325 at 332 a Full Federal Court rejected a submission that s.52 of the Trade Practices Act was directed only to conduct that is misleading and deceptive or likely to mislead or deceive members of the public in their capacity as consumer of goods and services. Mr Archer conceded that in light of the Full Court decision this limb of his submissions should not succeed before a single judge. However, he raised the point to preserve the right to argue that Bevanere Pty Ltd v Lubidineuse should be overruled. Counsel drew attention to the expressions of opinion in Concrete Constructions (N.S.W.) Pty Ltd v Nelson (1990) 169 CLR 594 by Brennan J. at 607, Toohey J. at 609-612 and McHugh J. at 621 which support the conclusion that conduct will not answer the language of sub.s.52(1) of the Trade Practices Act unless it is conduct of a character which misleads or deceives or is likely to mislead or deceive persons in their capacity as consumers of goods and services. I note the submission. Leave will be given to the applicants to amend para 90, as this is necessary to plead that the conduct alleged was in trade or commerce, and it is for the applicants to decide whether they wish to further amend to take account of Mr Archer's submission.
It is contended that the facts alleged in the statement of claim could not support the proposition that the conduct complained of was in trade or commerce. Rather it would appear to be conduct in the course of a purely private transaction in which Spargos played no real part at all. For this reason the complaint is not simply that the words "in trade or commerce" are omitted but that the statement of claim fails to plead material facts upon which an assertion could be made that the conduct complained of was in trade or commerce. Unless facts which establish this are by amendment pleaded it is contended that the whole of the paragraph should be struck out. In the course of enlarging on this submission counsel referred to the failure, so it is alleged, of the applicants to strictly observe the distinction between material facts necessary to be pleaded for the purpose of formulating a complete cause of action on the one hand and "particulars" on the other hand. The Court was referred to the well known passage from the judgment of Scott L.J. in Bruce v Odhams Press Limited (1936) 1 KB 697 at 712-3:

"The cardinal provision in r.4 is that the statement of claim must state the material facts. The word 'material' means necessary for the purpose of formulating a complete cause of action; and if any one 'material' fact is omitted, the statement of claim is bad; it is 'demurrable' in the old phraseology, and in the new is liable to be 'struck out' under Order XXV, r.4: see Philipps v Philipps

(1878) 4 QBD 127; or 'a further and better statement of claim' may be ordered under Order XIX, r.7.

The function of 'particulars' under r.6 is quite different. They are not to be used in order to fill material gaps in a demurrable statement of claim - gaps which ought to have been filled by appropriate statements of the various material facts which together constitute the plaintiff's cause of action. The use of particulars is intended to meet a further and quite separate requirement of pleading, imposed in fairness and justice to the defendant. Their function is to fill in the picture of the plaintiff's cause of action with information sufficiently detailed to put the defendant on his guard as to the case he has to meet and to enable him to prepare for trial. Consequently in strictness, particulars cannot cure a bad statement of claim. But in practice it is often difficult to distinguish between a 'material fact' and a 'particular' piece of information which it is reasonable to give the defendant in order to tell him the case he has to meet; hence in the nature of the things there is often overlapping. And the practice of sometimes putting particulars into the statement of claim and sometimes delivering them afterwards either voluntarily, or upon request or order, without any reflection as to the true legal ground upon which they are to be given has become so common that it has tended to obscure the very real distinction between them."

A strict distinction between material facts and particulars has tended to become more obscured as the years have gone by. The tendency now is towards narrative pleading as there is a growing concern that pleadings according to traditional rules do not adequately make known to the Court and to the parties the nature of the opposing cases in complex matters. The distinction has been further blurred in South Australia by the Supreme Court Rules 1987 (S.A.) which provide that particulars form part of the pleadings: Rules 46.04(f) and 46.16(2). Technical objections raised to pleadings on the ground of alleged want of form will be received with less enthusiasm today than in times past. Nevertheless the pleadings, including particulars stated therein, must be adequate to disclose the case which the opposing party must meet at trial, and to disclose a reasonable cause of action.
If those parts of para 90 which appear under the headings "Particulars of Representation" and "Particulars of Omissions" were omitted altogether the paragraph would fail to disclose the facts upon which it is asserted that the respondents engaged in conduct which was misleading or deceptive. Moreover, no facts would be pleaded which disclose the conduct relied on as conduct in trade or commerce. However, if those headings were deleted and the text thereunder treated as part of the pleading, the "particulars" would plead material facts sufficient to identify the conduct alleged. In my opinion para 90 should be so understood. It should be read as if the so called "particulars" are in reality statements of material fact forming part of the pleadings. The mere description of those statements as "particulars" should not be decisive. I have set out para 91 of the statement of claim, even though it is not challenged, as that indicates that the draftsman has not treated the representations and omissions identified under the headings of "particulars" as mere particulars but as pleadings of material facts. (I would suggest that paragraph 91 requires amendment as it presently pleads that omissions were false and misleading, a notion which, as the paragraph stands, is not free from difficulty).
There is however force in the submission of Mr Archer that even if the "particulars" in para 90 are read as pleadings of material fact, they are not sufficient, without more, to identify conduct sufficient to support a bald allegation, if it were made, that the respondents engaged in conduct in trade or commerce. The applicants should consider this submission when preparing their amendments.
Paragraphs 91A and 91B
These paragraphs are in a form similar to paras 90 and 91, but whereas para 90 pleads that by causing Beach to engage in certain conduct the respondent companies engaged in conduct that was misleading or deceptive, para 91A pleads that Jingellic, Spargos and Enterprise by advancing the amount of US$10,428,987 to Firstway, by entering into the SCAFA and the security documents, and in accepting repayments under the SCAFA, engaged in conduct that was misleading and deceptive. I shall not set out the paragraphs. What has been said in relation to paras 90 and 91 applies equally to paras 91A and 91B. However, para 91A includes a sentence preceding the particulars of representations and particulars of omissions the like of which does not appear in para 90, namely: "The conduct comprised the acts alleged in paras 91A.1 to 91A.5 and/or the representations and/or the omissions." The conduct alleged in paras 91A.1 to 91A.5 is the payment of the money and the entry into the various commercial transactions. I agree with Mr Archer that this sentence renders para 91A curious. Whereas it is possible to follow how the conduct alleged in para 90 could give rise to implied representations, and to omissions to disclose information where a duty to do so exists, the reference to the conduct comprising the commercial transactions referred to in paras 91A.1 to 91A.5 expands the paragraph to cover conduct which could not conceivably amount to conduct that was misleading or deceptive. I agree with Mr Archer that as it presently stands para 91A does not plainly and precisely plead a cause of action. If the second sentence were amended to delete the allegation that the acts alleged in paras 91A.1 to 91A.5 were in themselves conduct said to be misleading and deceptive, and to make clear that those acts are relied on to give rise to the implied representations and to the omissions said to constitute the misleading and deceptive conduct, the paragraphs would disclose a reasonable cause of action.
Paragraph 91B also alleges that the "omissions" were false and misleading, a matter referred to in relation to para 91.
Paragraph 92. It reads:

"92 By entering the SCAFA, accepting repayments under the SCAFA, entering the security documents, entering the Heads of Agreement and purportedly loaning funds under the SCAFA Spargos and/or Jingellic and/or Enterprise were indirectly or directly knowingly concerned with (sic) the conduct of Fuller, Main, Cummings and Johnson referred to in paragraph 87 contrary to the Fair Trading Act and/or the Trade Practices Act."

Clearly the paragraph is an attempt to plead accessorial liability on the part of Spargos founded on contraventions by its directors Fuller, Main, Cummings and Johnson. However, the directors are not corporations and none of them can contravene s.52 of the Trade Practices Act. The Fair Trading Act, s.84, provides a cause of action to a person who suffers loss or damage "against any person involved in the contravention" of a provision of Part X (other than s.57) of the Act. The language employed in para 92 reflects s.75B of the Trade Practices Act which is not in the same terms. The clause requires amendment and counsel for the applicants conceded that this was so.

Paragraph 92 is also attacked on the ground that by merely pleading that by entering into the SCAFA and the security documents, by the acceptance of repayments, and by the purported lending of funds accessorial liability arose, the clause fails to plead matters that are capable of supporting that conclusion. I agree with this submission. Unless further facts are pleaded to support a conclusion that Spargos was involved in the contravention of s.56 of the Fair Trading Act alleged against the directors, para 92 will fail to disclose any reasonable cause of action against Spargos. That is a matter which the applicants' amendments will have to address.
Paragraph 93.
This is the final paragraph under the heading "Misleading and Deceptive Conduct". It reads:

"93 By reason of the misleading and deceptive conduct pleaded above Fuller, Main, Cummings, Johnson, Firstway, Jingellic, Spargos and Enterprise have caused Beach to suffer loss and damage.

PARTICULARS

The interests acquired by means of the purchase of the bearer share in Mazeley for which the sum of US$10,428,987.00 was partly used were purchased for US$28,000,000.00 when in fact their value was significantly less, namely in the order of US$3.6 million."

It is contended that this paragraph is objectionable as there has been no attempt to identify how the loss and damage is attributable to particular acts of misleading or deceptive conduct, and there has been no attempt to identify which respondents are liable for what damage, and in what way.
In my opinion the paragraph adequately identifies the loss and damage alleged by the applicants. The applicants' claim is that the conduct of each of Spargos and the other respondent companies and directors named caused Beach to suffer the whole of the loss identified under the Particulars.
Paragraph 94.
The complaint made about para 94 requires also a consideration of paras 95 and 96. These paragraphs appear under the heading of "Conspiracy". Paragraph 94 reads:

"94 Between the 1st June 1988 and the 31st January 1991 Fuller, Cummings, Main, Johnson, Firstway, IRL, IRAG, Spargos, Enterprise and Jingellic wrongfully and maliciously conspired and combined amongst themselves to defraud and to injure the applicants or either of them in their business or businesses."

Standing alone para 94 would not constitute an adequate pleading of material facts to ground a cause of action in conspiracy to injure. It is necessary to go also to para 95 which pleads as "Particulars" nine overt acts carried out by parties to the alleged conspiracy. Those acts refer to the directors causing or encouraging Beach to enter into the Charge and Option Agreement and to the exercise of it, and to the directors, Jingellic, Enterprise and Spargos causing or encouraging Beach to make payments on account of the option fee, to enter into the SCAFA, and to give the securities. The contention on behalf of Spargos is that whilst these overt acts may support a cause of action for conspiracy to injure, they do not support a cause of action for conspiracy to defraud Beach or Claremont in their business or businesses. The submission was not elaborated upon with authority. "To defraud" is to "act to the prejudice of another's rights": see Welham v DPP (1961) AC 103 per Lord Radcliffe at pp 123-124 and 128 and per Lord Denning at pp 133. Lord Denning observed, "If anyone may be prejudiced in any way by the fraud, that is enough". Although that was a case which concerned the meaning of "intent to defraud" in relation to forgery, Lord Dilhorne, with whose speech the other Law Lords agreed, observed in Scott v Metropolitan Police Commissioner (1975) AC 819 at 838 that Lord Radcliffe's observations in Welham applied equally to the offence of conspiracy to defraud. To plead that the respondents conspired "to defraud and to injure" would appear to add nothing to the more customary plea that they "conspired to injure": see Bullen and Leak and Jacobs, Precedents and Pleading, 13 ed., pp 220-229. The overt acts pleaded in para 95 are directed to a conspiracy to act to the prejudice of Beach and Claremont. In my opinion the attack on para 94 fails.
Paragraph 97.
The primary complaint about para 97 is that it alleges loss and damage suffered by the "plaintiff". The applicants concede that the paragraph requires amendment. It is necessary that the pleading identify which of the applicants suffered loss and damage. If it is alleged that both of them did so, and not just Beach, the paragraph in its present form fails to identify what loss and damage it is alleged that each suffered.
Paragraphs 97A and 97B.
These may be considered together. They appear under the heading "Principal and Agent". It is contended that the paragraphs assert claims which, in the form pleaded, are unknown at law. Without setting out the paragraphs, it is alleged in para 97A that the directors of Jingellic, Spargos and Enterprise acted as agents for those companies when acting in the manner elsewhere pleaded to be dishonest, fraudulent, in breach of fiduciary and statutory duty, with the intention of causing economic harm to Beach, and misleading and deceptive. In para 97B it is pleaded that by reason of the matters in para 97A Jingellic, Spargos and Enterprise are liable as principals for the acts of their agents, the directors. Mr Archer contends that the paragraphs fail to plead material facts upon which the legal conclusion of agency could be based. I agree with Mr Archer that the mere assertion that Fuller, Cummings and Main were directors and Johnson a deemed director of Spargos, and that they caused Spargos to enter into the various transactions, does not provide a sufficient factual basis to support the conclusion that they acted in furtherance of the fraudulent or wrongful activity alleged as agents for Spargos. The paragraph, for example, fails to plead that the directors were acting pursuant to an actual authority of the company, or within the apparent or usual authority of a director of the company, or in some other circumstances which would attach vicarious liability to the company as principal. Unless this deficiency is rectified by amendment paras 97A and 97B should be struck out.
Paragraphs 97C and 97D.
It is complained that paras 97C and 97D also fail to plead requisite material facts to support a conclusion of constructive trust therein pleaded. Paragraphs 97C and 97D plead, in effect, that as Fuller, Cummings and Main (save in respect of Enterprise) were directors and Johnson a deemed director of Jingellic, Spargos and Enterprise, those companies had knowledge of the breaches of duty and law committed by those people as directors and deemed director of Beach and Claremont; and that the companies received payments pursuant to the SCAFA with that knowledge. By reason thereof it is pleaded that Spargos and the other companies are the constructive trustees of Beach. It is contended that if there is a case to be pleaded against Spargos of constructive trust it ought to be pleaded separately and in greater detail, not in "the shorthand form". In my opinion the material facts on which the claim of constructive trust rests are sufficiently pleaded, even though it is necessary to go back to several earlier paragraphs in the statement of claim which are identified by number in para 97C.
Paragraph 97E.
This paragraph pleads that Jingellic, Spargos and Enterprise aided, abetted, counselled or procured or directly or indirectly were knowingly concerned in or a party to the breaches of s.229 of the Companies Code by Fuller, Cummings, Main and Johnson and are each accordingly deemed to be correspondingly in breach of s.229. It is contended by Mr Archer that the notion that by aiding, abetting, etc. the breach of a statutory provision by another, a person is deemed to be correspondingly in breach is erroneous. In the absence of a statutory provision having that deeming effect, that may be so (see Lonrho Ltd and Anor v Shell Petroleum Co Ltd and Anor (1982) AC 173), but a deeming provision exists in s.38 of the Companies and Securities (Interpretation and Miscellaneous Provisions) Code and it is upon this provision that the applicants rely.
A cause of action for compensation exists under sub.s.229(7) of the Companies Code against a person who "contravenes or fails to comply with the provision of this section". Section 38 of the Companies and Securities (Interpretation and Miscellaneous Provisions) Code provides that a person who aids, abets, etc. the commission of an offence against the Code "shall be deemed to have committed that offence and is punishable accordingly". It is contended by Mr Archer that the deeming provision is confined in its operation to the prosecution of an accessory for the principal offence, but does not extend to render the accessory liable to pay compensation in a civil suit. In my opinion it is clearly arguable that s.38 does have the effect of rendering an accessory liable to pay compensation. It cannot be said that the cause of action pleaded in para 97E is untenable.
It is also contended that 97E is nonetheless bad as it should be construed standing alone, and, so read, it fails to plead material facts that could support the conclusions that Jingellic, Spargos and Enterprise aided, abetted, etc. the breaches of s.229. But para 97E must be read, at the least, with paras 97C and 97D which appear with para 97E under the heading "Knowledge of Breach of Duty". Paragraph 97C does identify by number earlier paragraphs relied on in the statement of claim. The material facts pleaded in those paragraphs, read with para 97E, in my opinion sufficiently plead a reasonable cause of action for compensation under s.229 of the Companies Code.
Paragraphs 106 and 108.
These paragraphs read:

"106 At all material times Jingellic, Spargos and Enterprise were aware of the matters alleged in paragraphs 55 to 60 inclusive and 75 to 105 inclusive.

...

108 By reason of the matters alleged in paragraphs 55 to 60 inclusive and 75 to 106 inclusive the purported loan of moneys to Beach, the SCAFA, the security documents, the payments under the SCAFA and the Heads of Agreement are vitiated by fraud and are void or voidable at the instance of Beach as against Spargos, Jingellic and Enterprise by Beach."

It is contended that the earlier paragraphs identified by number in each instance refer not only to material facts pleading states of knowledge and events said to constitute breaches of fiduciary and statutory duty and misleading and deceptive conduct by the directors of the companies, but also the legal consequences thereof - all of which para 106 pleads were known to Jingellic, Spargos and Enterprise. The paragraphs are described by Mr Archer as an attempt to plead a catch-all claim to pick up anything that may have been overlooked in the balance of the pleading, and in the form in which they appear fail to plead material facts supporting a particular cause of action. The reference to numerous earlier paragraphs in para 106 lacks precision and leaves the respondents uncertain what facts are relied upon.

I do not read paras 106 and 108 as safety net provisions intended to pick up oversights or omissions. On the contrary I consider the paragraphs are directed specifically to plead that particular transactions, which are identified in para 108, are vitiated by fraud and are void or voidable. The material facts relied on are pleaded in the earlier paragraphs identified. It may be that the directors or the companies or some of them were not aware of all the conclusions of law which are pleaded in certain of the paragraphs identified, but the pleading does not fail for that reason to allege a reasonable cause of action. In my opinion the paragraphs should not be struck out.
Conclusion
I consider the proper course now is to stand the notice of motion over to allow the applicants to further amend the amended statement of claim to cover the short comings identified in these reasons. At this point I do not consider it is appropriate to strike out any part of the statement of claim.

[1991] FCA 839

20 DECEMBER 1991