Bowden v Murray Valley Aboriginal Cooperative
[2018] VSC 591
•8 October 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
EMPLOYMENT AND INDUSTRIAL LIST
S CI 2017 01370
BETWEEN:
| STEVEN BOWDEN | Plaintiff |
| v | |
| MURRAY VALLEY ABORIGINAL COOPERATIVE | Defendant |
AND BETWEEN:
| MURRAY VALLEY ABORIGINAL COOPERATIVE | Plaintiff by Counterclaim |
| v | |
| STEVEN BOWDEN AND OTHERS (according to the schedule) | Defendants by Counterclaim |
AND BETWEEN:
| PHILIP EGAN | Plaintiff by Cross-claim |
| v | |
| MURRAY VALLEY ABORIGINAL COOPERATIVE | Defendant by Cross-claim |
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S CI 2017 01370
JUDGE: | Ierodiaconou AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 23 August 2018 |
DATE OF RULING: | 8 October 2018 |
CASE MAY BE CITED AS: | Bowden v Murray Valley Aboriginal Cooperative |
MEDIUM NEUTRAL CITATION: | [2018] VSC 591 |
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PRACTICE AND PROCEDURE – Joinder – Application by plaintiff by counterclaim to add parties – Supreme Court (General Civil Procedure) Rules 2015 r 9.06(b) – Leave granted to join additional parties to counterclaim.
PRACTICE AND PROCEDURE – Application by plaintiff by counterclaim to amend counterclaim as against the fourth defendant by counterclaim – Supreme Court (General Civil Procedure) Rules 2015 r 36.01 – Mandie v Memart Nominees Pty Ltd [2016] VSCA 4 – Relevant test whether amendments raise a claim or defence that has no real prospect of success – Amendments substantially allowed.
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APPEARANCES: | Counsel | Solicitors |
| For the Defendant/Plaintiff by counterclaim/Defendant by Cross-claim | Mr N Harrington with Ms F Leoncio | K & L Gates |
| For the Fourth Defendant by Counterclaim/Plaintiff by Cross-claim | Mr P Corbett QC with Ms L Kirwan | Frenkel Partners |
TABLE OF CONTENTS
Joinder Application...................................................................................................................... 1
Background.................................................................................................................................... 1
Applicable Principles................................................................................................................... 2
Application of the CPA................................................................................................................ 7
Proposed amended defence and counterclaim...................................................................... 10
Defects and inconsistencies.............................................................................................. 10
Allegations of dishonesty................................................................................................. 13
Claims for loss and damage............................................................................................. 15
Mr Egan’s objections to existing pleadings................................................................... 15
Relationship and duties............................................................................................................. 16
Analysis............................................................................................................................... 17
Conduct in 2010–12 as CEO of the Co‑operative................................................................... 20
Analysis............................................................................................................................... 21
Payment to Mr A Reid of $40,000 in early February 2011.................................................... 22
Analysis............................................................................................................................... 24
Mr Egan 2010–12 CEO/director conduct................................................................................ 25
Analysis............................................................................................................................... 28
Mr Egan conduct as a contractor CEO in 2013–14.................................................................. 29
Analysis............................................................................................................................... 29
2013–14 invoicing conduct......................................................................................................... 30
Analysis............................................................................................................................... 30
Payment to Binmada.................................................................................................................. 30
Analysis............................................................................................................................... 31
Excel Corporate Services invoice dated 15 April 2013.......................................................... 31
A Reid Contracting invoice no. 35............................................................................................ 32
Analysis............................................................................................................................... 33
Excel Corporate Services invoice dated 10 May 2013........................................................... 33
Analysis............................................................................................................................... 34
August 2013: Egan doubles his CEO contractor charges...................................................... 34
Analysis............................................................................................................................... 34
SMP Architects invoice no. 259................................................................................................. 34
Analysis............................................................................................................................... 35
HER HONOUR:
The central issue for determination in this ruling is an application by the Murray Valley Aboriginal Co-operative (‘the Co-operative’) to amend its counterclaim against the fourth defendant to the counterclaim, Mr Philip Egan. He opposes the application.
Joinder Application
The Co-operative also seeks orders for the joinder of Binmada Pty Ltd (‘Binmada’), whose sole director at all material times is said to be Mr Egan, and Mr Andrew Reid. Mr Reid is alleged to be a contractor to whom moneys were unlawfully paid. Neither Binmada nor Mr Reid appeared to oppose the application for joinder although they were on notice of the application. Having considered the proposed counterclaim against them, I am satisfied that they should be joined on the basis that it is necessary to ensure all questions in the proceeding are effectually and completely determined and adjudicated upon, and also there is a question arising out of, or connected with the counterclaim, which is just and convenient to determine as between those parties and the parties in this proceeding. This satisfies the requirements for joinder pursuant to r 9.06(b) of the Supreme Court (General Civil Procedure) Rules 2015 (‘the Rules’).[1]
[1]All rules cited in this ruling refer to the Rules.
Background
The Co-operative is defending a claim made in this proceeding by its former Chief Executive Officer (’CEO’), Mr Steven Bowden. Mr Bowden was the CEO of the Co‑operative for a period of about two years, being June 2014 until July 2016. He alleges breach of contract by reason of a failure to pay him a payment equivalent to 12 months’ remuneration upon him terminating his employment contract and achieving Key Performance Indicators, and seeks payment of approximately $135,000.[2] Mr Bowden also seeks transfer of ownership of a motor vehicle based upon an alleged contractual term.
[2]Writ and statement of claim filed in the County Court of Victoria and dated 19 September 2016.
The Co-operative has made a counterclaim against Mr Bowden and a number of people it says were formerly its officers, including the fourth defendant, Mr Egan. The Co-operative says that they breached their duties to it and owe it moneys. In relation to Mr Egan, it seeks to amend the counterclaim:
to add claims that [Mr] Egan breached his fiduciary duties, the Co-operatives Act 1996 (Vic) and the Co-operatives National Law Application Act 2013 (Vic) in respect of the following conduct:
(a) in 2011-2012, authorizing[,] engineering, facilitating or directing payments made by [the Co-operative] in relation to a contractor, [Mr] Andrew Reid; and
(b) in 2012-2014, diverting [the Co-operative’s] funds for his own benefit or for the benefit of Binmada through the payment of contractor invoices ([Mr] Reid, Excel Corporate Service and SMP Architects).[3]
[3]The Co-operative’s submissions dated 10 August 2018, [23].
There was some dispute about the applicable principles for amendment and it is useful to set them out at the outset.
Applicable Principles
Rule 36.01 is applicable.
36.01 General
(1) For the purpose of—
(a)determining the real question in controversy between the parties to any proceeding; or
(b) correcting any defect or error in any proceeding; or
(c) avoiding multiplicity of proceedings—
the Court may, at any stage order that any document in the proceeding be amended or that any party have leave to amend any document in the proceeding.
(2) In this Order document includes—
(a) originating process;
(b) an indorsement of claim on originating process; and
(c) a pleading.
(3)An indorsement of claim or pleading may be amended under paragraph (1) notwithstanding that the effect is to add or substitute a cause of action arising after the commencement of the proceeding.
…
The Co-operative’s summons states that its application for amendment is pursuant to r 36.03(4)(b), however there is no such rule. Their submissions, in addition to relying on r 36.03(4)(b), refer to r 36.01, which provides for the amendment of a pleading at any stage.[4]
[4]The Co-operative’s written submissions dated 22 August 2018, [1], [14].
In Mandie v Memart Nominees Pty Ltd,[5] the Court of Appeal outlined applicable principles in respect of amendment, as follows.
The [Civil Procedure Act 2010 (‘CPA’)] has changed the litigation landscape. One of the main purposes of that legislation is to reform practice and procedure in civil proceedings, including by reforming the law relating to summary judgment. More than ever, the focus is now pointedly on efficiency and cost-effectiveness, albeit that they are not the only, nor the predominant, considerations. One consequence is that amendments that might have been permitted previously may no longer be allowed. As such, the older authorities that preceded the [CPA] which set out when a pleading amendment will be allowed must be approached with caution.
The power conferred on the court by s 63(1) of the [CPA] to dispose of claims before a trial facilitates one of the stated purposes of the Act. Subject to limited exceptions, if a claim or defence has no real prospect of success, then summary judgment may be given. It must follow that a proposed pleading amendment raising a claim or defence of that type should not be permitted. To grant leave in that circumstance would be futile as the claim or defence would be susceptible to a summary judgment application. This principle facilitates the administration of justice, as it enables courts to prevent claims or defences being pleaded where they will inevitably fail and thus avoid the cost and inconvenience that would otherwise arise if those claims or defences were permitted to be made only to be the subject of summary judgment subsequently.[6]
[5][2016] VSCA 4.
[6]Ibid [42]–[43] (citations omitted; emphasis added).
Elliot J recently summarised some of the applicable principles in Cargill Australia Ltd v Viterra Malt Pty Ltd (No 10), as follows.[7]
In deciding whether to grant leave to a party to amend its pleadings, the Court must consider whether the proposed amendments facilitate the identification of the real issues in dispute and the just resolution of the proceeding.[8]
The power to grant leave to a party to amend its pleading to raise an arguable issue is a discretionary power. There is no right or entitlement for a party to amend its pleading subject to the payment of costs referable to the amendment.[9] The nature and importance of the proposed amendments must be considered.[10] This factor must be weighed against case management considerations such as cost, delay and the potential for unfair prejudice to other parties to the proceeding, the court and other litigants.[11]
[7][2018] VSC 439 [16]–[18] (emphasis added).
[8]AON Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175, 204–5 [69] (Gummow, Hayne, Crennan, Kiefel and Bell JJ) (‘Aon’). See also ABL Nominees Pty Ltd v Mackenzie (No 2) [2014] VSCA 529, [17] (Derham AsJ).
[9]AON (2009) 239 CLR 175, 212 [96], 213 [98]–[99], 217 [111] (Gummow, Hayne, Crennan, Kiefel and Bell JJ).
[10]Ibid, 214 [102] (Gummow, Hayne, Crennan, Kiefel and Bell JJ).
[11]Ibid, 213 [98]–[99], 214–15 [102], 217 [111] (Gummow, Hayne, Crennan, Kiefel and Bell JJ); CPA s 7.
Derham AsJ outlined applicable principles in ABL Nominees Pty Ltd v MacKenzie (No 2), as follows.[12]
[12][2014] VSC 529, [20]–[22] (emphasis added).
In Namberry Craft Pty Ltd v Watson,[13] Vickery J summarised the relevant factors to be considered, as a result of the decision in [AON],[14] as follows:
[13][2011] VSC 136 (‘Namberry’).
[14](2009) 239 CLR 175.
[T]here are to be limits placed upon re-pleading. The High Court in [AON] referred to a range of other considerations which need to be weighed in the balance in the exercise of the discretion to grant an amendment to a pleading. The High Court made reference to the following factors:
(a)Whether there will be substantial delay caused by the amendment;
(b)The extent of wasted costs that will be incurred;
(c)Whether there is an irreparable element of unfair prejudice caused by the amendment, arising, for example, by inconvenience and stress caused to individuals or inordinate pressures placed upon corporations, which cannot be adequately compensated for, whatever costs may be awarded;
(d)Concerns of case management arising from the stage in the proceeding when the amendment is sought, including the fact that the time of the court is a publicly funded resource, and whether the grant of the amendment will result in inefficiencies arising from the vacation or adjournment of trials;
(e)Whether the grant of the amendment will lessen public confidence in the judicial system; and
(f)Whether a satisfactory explanation has been given for seeking the amendment at the stage when it is sought.[15]
This list of factors is not exhaustive. It is made against the background of the earlier decision of the High Court in Queensland v JL Holdings Pty Ltd,[16] and the authorities that preceded it, including the famous case of Cropper v Smith,[17] where the liberal approach to the amendment of pleadings finds its lead in the dissenting judgment of Bowen LJ.
On the other hand, pleadings are not an end in themselves. They are a means of ensuring that real issues of controversy are raised for determination in a way that is procedurally fair, both to a plaintiff and a defendant. This allows claims and defences to be clearly articulated, granting parties an opportunity to present their case properly prepared, on clear notice of allegations and defences raised in the proceedings. On this basis, the authorities clearly establish that, absent extraordinary circumstances, leave to amend will be granted.[18]
[15]Namberry [2011] VSC 136, [38]. Equuscorp Pty Ltd v Acehand Pty Ltd [2010] VSC 89, [19].
[16](1997) 189 CLR 146.
[17](1884) 26 Ch D 700.
[18]ACN 074 971 109 v National Mutual Life Association of Australasia Ltd [2010] VSC 186, [28].
An issue that arises with respect to the amendment is whether amendments pleading dishonesty should be allowed. After a review of applicable authorities, Sifris J summarised the requirements for pleading dishonesty, as follows.[19]
Accordingly, in my opinion, if sufficient facts and circumstances are pleaded (with sufficient particularity) which if established by the evidence, might, or are capable of, supporting an inference of specific dishonest conduct, the pleading will be sufficient. It is not necessary to plead evidence or a path of reasoning. Of course the claim may fail if the facts are not made out, or other lesser remedies may be established, such as negligence. However, if the facts pleaded are only consistent with such lesser remedy, the pleading of dishonesty will not be sufficient. However, if the facts, circumstances and relevant context as pleaded might, if established by the evidence, rise to the level of dishonesty the pleading is sufficient whatever the result. In my view there is nothing in the authorities referred to that suggests otherwise.
[19]Finance & Guarantee Company Pty Ltd v Auswild (No 2) [2016] VSC 559, [40] (emphasis added) (‘Auswild’).
The overarching purpose of the CPA is to facilitate the just, efficient, timely and cost effective resolution of the real issues in dispute in a civil proceeding.[20] Section 8 requires the Court to give effect to the overarching purpose in the exercise of any of its powers. Section 9(1) requires the Court to further the overarching purpose in making any order or direction in a civil proceeding by having regard to the just determination of the proceeding, the efficient conduct of the business of the Court, the efficient use of judicial and administrative resources, minimising delay, timeliness and proportionality.
[20]CPA s 7.
Section 9(2) of the CPA provides that the Court may have regard to a number of matters for the purposes of s 9(1). These include the degree of promptness with which the parties have conducted the proceeding, including the degree to which each party has been timely in undertaking interlocutory steps in relation to the proceeding, the degree to which any lack of promptness has arisen from circumstances beyond the control of that party, the degree to which each person to whom the overarching obligations apply has complied with those obligations, and any prejudice that may be suffered by a party as a consequence of any order proposed to be made.
Sections 20 and 22–5 of the CPA are as follows:
20Overarching obligation to Co-operate in the conduct of civil proceeding
A person to whom the overarching obligations apply must Co-operate with the parties to a civil proceeding and the court in connection with the conduct of that proceeding.
22Overarching obligation to use reasonable endeavours to resolve dispute
A person to whom the overarching obligations apply must use reasonable endeavours to resolve a dispute by agreement between the persons in dispute, including, if appropriate, by appropriate dispute resolution, unless—
(a) it is not in the interests of justice to do so; or
(b)the dispute is of such a nature that only judicial determination is appropriate.
23 Overarching obligation to narrow the issues in dispute
If a person to whom the overarching obligations apply cannot resolve a dispute wholly by agreement, the person must use reasonable endeavours to—
(a)resolve by agreement any issues in dispute which can be resolved in that way; and
(b) narrow the scope of the remaining issues in dispute—
unless—
(c) it is not in the interests of justice to do so; or
(d)the dispute is of such a nature that only judicial determination is appropriate.
24Overarching obligation to ensure costs are reasonable and proportionate
A person to whom the overarching obligations apply must use reasonable endeavours to ensure that legal costs and other costs incurred in connection with the civil proceeding are reasonable and proportionate to—
(a)the complexity or importance of the issues in dispute; and
(b)the amount in dispute.
25 Overarching obligation to minimise delay
For the purpose of ensuring the prompt conduct of a civil proceeding, a person to whom the overarching obligations apply must use reasonable endeavours in connection with the civil proceeding to—
(a) act promptly; and
(b) minimise delay.
Application of the CPA
Applying the factors in Aon summarised above, the timing of the amendment application is a relevant consideration. The Co‑operative relies on the affidavit of its solicitor, David Hartnett, sworn on 30 July 2018 (‘the first Hartnett affidavit’). In that affidavit, Mr Hartnett deposes that in about early 2018, consultants were commissioned to undertake an in-depth expert analysis of the Co‑operative’s books of account and ledger for the period late October 2010 to late 2014. The purpose was to ascertain where and when certain sums were paid to Mr Egan, Mr Reid and any person associated with them. The report was received on 10 May 2018 and the Co‑operative claims it is subject to legal professional privilege.
On 25 May 2018, the Co‑operative’s lawyers sent a request to Mr Reid for documents pertaining to invoices he issued to the Co-operative over a two and a half year period commencing in December 2010, totalling $145,500.[21] It demanded that Mr Reid produce within 7 days certain documents pertaining to the invoices he issued to the Co-operative. Mr Reid did not respond to the letter.
[21]Exhibit ‘DH-4’ to the first Hartnett affidavit.
On 29 May 2018, prior to mediation, the Co‑operative’s lawyers sent an initial version of the proposed amended counterclaim to Mr Egan’s solicitors.[22] There was no reply to that letter. The mediation occurred on 30 and 31 May 2018. The Co‑operative’s counterclaim against the second defendant by counterclaim, Ms Stead, settled. The other claims did not.
[22]Exhibit ‘DH-3’ to the first Hartnett affidavit.
On 8 June 2018, a letter of demand was sent from the Co-operative’s solicitors to Mr Egan in respect of new claims the Co-operative believed it had against him.[23] The letter demanded Mr Egan and/or Binmada repay to the Co-operative sums totalling $225,000. On 13 June 2018, Mr Egan’s solicitors responded to the letter of demand, advising they acted for Mr Egan personally but not Mr Reid nor Binmada.[24] Amongst other things, they requested the Co‑operative outline, with adequate detail, the legal and factual basis for the various demands with any supporting documentation. The Co‑operative did not directly respond to the letter.
[23]Exhibit ‘DH-5’ to the first Hartnett affidavit.
[24]Exhibit ‘DH-7’ to the first Hartnett affidavit. This letter also forms exhibit ‘JDE-1’ to the affidavit of James Daniel Edgar, Mr Egan’s solicitor, sworn on 9 August 2018 (‘the first Edgar affidavit’).
The Co-operative’s solicitors sent a letter to Mr Egan’s solicitors with a further draft amended counterclaim on 3 July 2018.[25] This was a day after the time provided for in consent orders made on 15 June 2018. The consent orders provided that each defendant by counterclaim was to notify the Co-operative of its consent or opposition to the filing of the draft amended counterclaim by 4pm on 25 July 2018. The Co‑operative did not receive any response from the defendants by counterclaim by that date.
[25]Exhibit ‘DH-12’ to the first Hartnett affidavit.
On 31 July 2018, Mr Egan’s solicitors sent a letter addressing the proposed amended counterclaim.[26]
[26]Exhibit ‘JDE-9’ to the first Edgar affidavit.
Later on 31 July 2018, the Co-operative filed the first Hartnett affidavit. On 2 August 2018 it filed its summons seeking leave to file the amended counterclaim. Since then, the parties have further corresponded, and their counsel were requested by the Court to confer.[27] Consequently, the Co‑operative’s solicitors provided Mr Egan’s solicitors with further versions of the proposed amended counterclaim.
[27]Orders made on 13 August 2018 requested the legal practitioners for the Co-operative and Mr Egan to confer in order to narrow the issues in dispute prior to the return of this application.
The Co‑operative says it acted promptly when it formed an opinion it had additional claims against Mr Egan. It sent the initial draft of the pleading and letter of demand to him. In short, the Co‑operative says that the amendments follow settlement of the claims against Ms Stead at mediation, the process of discovery and having regard to matters raised by Mr Egan’s solicitors on the proposed amendments.
The Co‑operative says that the interlocutory process is yet to conclude. No trial evidence has been filed by the parties. The proceeding has not yet been listed for trial.
Mr Egan does not allege that the amendment would cause substantial delay, wasted costs or unfair prejudice.
I accept the uncontradicted evidence of Mr Hartnett, described above, as to the timing of the amendment application. I am satisfied with the explanation. Indeed, the Co‑operative appears to have acted consistently with its CPA obligations to attempt to narrow the issues in dispute.
Given that no prejudice was identified or alleged, I accept that no party will be unfairly prejudiced by the timing of these amendments.
Turning to case management factors. This is the Co‑operative’s first application to amend. Although two trial dates were vacated when the proceeding was in the County Court of Victoria, since its transfer further parties have been added, and discovery has occurred. It is not yet listed for trial. No witness statements have been filed. I do not consider the amended counterclaim will cause substantial delay. Further, it is necessary to identify the real questions in controversy between the parties. The key issues in dispute are discussed below. I also accept the Co-operative’s submission that the additional claims against Mr Egan and the addition of Binmada and Mr Reid are to avoid the multiplicity of proceedings and because those additional claims are connected with the current counterclaim.[28]
[28]The Co-operative’s submissions dated 10 August 2018.
Proposed amended defence and counterclaim
The proposed amended defence and counterclaim (‘PADAC’) forms Exhibit ‘DH-19’ to the affidavit of David Hartnett, solicitor, sworn on 22 August 2018 (‘the third Hartnett affidavit’).
Upon questioning by the Court, Mr Egan’s senior counsel confirmed that the amendment to the pleading was challenged on form rather than substance. That is, Mr Egan does not say that the amendments have no real prospect of success. Rather, he says that the pleadings are in such a state that one does not get there. Amongst other things, Mr Egan relies on the principles applicable to strike out applications.
In view of Mr Egan’s submissions, it is unnecessary to make findings in respect of factual disputes between the parties. A number of these factual disputes are referred to below. They are more appropriately ventilated at trial.
Mr Egan made some global objections to the amendments and it is useful to consider them here.
Defects and inconsistencies
Mr Egan says there are numerous defects and inconsistencies in the manner in which the Co-operative has pleaded the alleged duties and agreements by which he is alleged to have performed work for it. He refers to a number of examples. Firstly, he argues the allegations concerning periods when Mr Egan was a CEO are inconsistent. Secondly, the pleading that Mr Egan is an independent contractor appears to be contradicted elsewhere in the pleadings.
Turning now to an example relied upon by Mr Egan, namely the alleged inconsistencies between paragraphs 126, 127, 186 and 187 of the PADAC.
In paragraph 126, the Co-operative pleads that there are two different periods in which Mr Egan acted as CEO. The first is from November 2010 until about September 2012 (‘2010–12 CEO period’). This is admitted in the defence. The second period is May 2013 until October 2013, during which his services were provided through his company, Binmada (‘the 2013 CEO period’). This second period is part of the amended pleading.
Paragraph 127 pleads that on 24 November 2010 Mr Egan entered into a written agreement with the Co-operative. It pleads the agreement is dated 19 November 2010 and that it provided for Mr Egan to perform duties during the 2010–12 CEO period. The date of the agreement is subsequent to the commencement date of Mr Egan as CEO. Mr Egan queries how that can be so. He also queries how the agreement can be dated one particular date and executed on another date. However, in paragraph 127 of his defence, Mr Egan pleads that he commenced the CEO role in or around November 2010 and refers to a two year contractor agreement that was signed on 24 November 2010. The date of the alleged agreement, whether it was dated on the date it was prepared, and signed on another date, and the precise date upon which Mr Egan commenced the CEO role at the Co-operative are questions of fact for trial. Whether Mr Egan commenced his duties prior to a contractor agreement being executed is also a question of fact for trial.
Paragraph 186 pleads that Binmada signed a two year contract in October 2012 to provide Mr Egan’s services to the Co-operative, and that Binmada terminated the contract shortly afterwards, in November 2012. Paragraph 186 also pleads that from 12 October 2012 to 24 April 2013, Binmada provided Mr Egan’s services and refers to two invoices issued. Further, that in the period 6 May to 21 October 2013, Binmada agreed to provide the Co-operative with Mr Egan’s services as a CEO.
Paragraph 187 pleads that Mr Egan was an independent contractor in the period December 2010 to 21 October 2013. That is, over the whole of the 2010–12 CEO period and the 2013 CEO period, save for November 2010. In paragraph 127 of the defence, Mr Egan says he commenced acting in the position of CEO on the basis that he was an independent contractor.
Paragraph 126 of the PADAC pleads that Mr Egan was appointed a director of the Co‑operative at the 2012 annual general meeting and, shortly after, to the positions of secretary and treasurer. It is also pleaded he was appointed chairman in 2013 (although the date in 2013 has changed in the amended pleading), and that he ceased as a chairman, treasurer, secretary and director of the Co‑operative upon the 2015 appointment of an administrator. In paragraph 126 of his defence, Mr Egan admits this.
In summary, it appears to be mutual ground between the parties that Mr Egan performed multiple roles for the Co‑operative including CEO, director and chairman of the Co‑operative. It is common ground that he was an independent contractor for some or all of the period. As to the dates various roles were performed, that is a factual issue to be determined at trial. However, the 2010–12 CEO period is common ground, as is the fact he was appointed director (among other positions) in 2012 and chairman in 2013, and that he ceased in those roles upon appointment of the administrator in 2015.
Reading paragraphs 126, 127, and 186 of the PADAC, I do not consider that there is no real prospect of success. Nor is that contended. The Co‑operative pleads the overlapping roles held by Mr Egan. This is necessary for determination of the real issues in dispute, including allegations of various breaches (some discussed below) in respect of those roles. The amendments to paragraph 126 and 127 largely concern the addition of dates, and reference to the alleged contractor agreement. The latter agreement may already be referred to in paragraph 127 of Mr Egan’s defence. Regardless, Mr Egan is clearly on notice by the proposed amendments of the case which he must meet, and the real issues in dispute. I do not accept his submission that the alleged defects and inaccuracies give rise to a ground to disallow the amendments.
As to paragraph 187, the Co‑operative concedes it is duplicative and should be removed on that basis.
There are a number of typographical and grammatical errors that the Co‑operative says will be corrected if leave is given for the PADAC to be filed. For instance, sub‑paragraph (a) of paragraph 247 was accidentally deleted in the PADAC. Another example is paragraph 212(b); it contains a typographical error with the date. Given the multiple versions of the PADAC that have been exchanged between parties, it is unsurprising there are some errors of this nature. The Court will make orders that the PADAC be filed in substantially the same form, rather than verbatim, to enable the Co-operative to correct typographical and grammatical errors.
Allegations of dishonesty
Paragraphs 208, 215 and 222 of the PADAC are new pleadings. Paragraph 208 pleads that Mr Egan breached s 221(1) of the repealed Co-operatives Act 1996 (‘the CA’) ‘by reason that, as an officer of [the Co‑operative], he knowingly and without any entitlement’ diverted certain funds, that he retained the funds, or assisted Binmada to retain them knowing there was no entitlement to do so, and that he permitted or allowed the transfer of such funds from the Co-operative without ensuring a record existed that he and/or Binmada received such funds. There is a similar pleading at paragraphs 215 and 222 in respect of other funds.
Referring to these paragraphs (208, 215 and 222) as examples, Mr Egan says they are allegations of dishonesty and in respect of such allegations he is entitled to know, with precision and clarity, the full case against him. He says that the allegations do not set out the relevant state of mind or knowledge which gives rise to the fact of dishonesty. He says it is insufficient to say ‘knowingly and without any entitlement’ as it does not correspond with the provisions in the CA that the Co‑operative invokes.
Mr Egan says the pleading cannot support an allegation of fraud or dishonesty if there is an explanation the transaction was innocent. He says if you do not know then you cannot plead fraud and dishonesty. Accordingly, he argues that the Co‑operative cannot plead fraud on the basis that it has no record of services performed for which invoices were rendered and paid, and therefore the person authorising the invoices engaged in fraud.
Section 221(1) of the CA states:
Officers must act honestly
(1) An officer of a co-operative must at all times act honestly in the exercise of his or her powers and the discharge of the duties of his or her office, both in the State and elsewhere.
The Co-operative pleads a breach of the duty to act honestly in s 221(1). In an earlier draft it had simply pleaded that Mr Egan did not act honestly, but following objection from him, the pleading was amended to the current wording, namely ‘knowingly and without any entitlement’. Having objected to the use of words that correspond with the CA (‘did not act honestly’), Mr Egan cannot now properly complain that the words do not correspond to the CA. At any rate, what is clear from the words ‘knowingly and without any entitlement’, and the plea that follows, is that the Co‑operative is pleading that Mr Egan acted dishonestly in relation to the particular transactions alleged.
As to Mr Egan’s claim that the pleadings do not set out the requisite state of mind or knowledge giving rise to the plea of dishonesty, I cannot accept that there is no real prospect of the Co‑operative establishing that on the current plea.
I refer to the principles in Auswild cited above. In that decision, Sifris J also stated:
Particulars of the requisite knowledge, the usual foundation for a dishonesty claim of this kind, continue to cause difficulty for obvious reasons. First, one does not know what is in a person’s mind or what that person knew. The state of mind of a person is almost always established by inference. Secondly, there is very rarely a ‘smoking gun’ admission type document. Consequently, all facts and matters, historic and general, contextual and specific may be relevant to compelling the necessary inference.[29]
[29]Auswild [2016] VSC 559, [50].
I am satisfied on the current pleading that Mr Egan knows the case he must meet. The alleged facts and circumstances, pleaded with particularity, are capable of supporting an inference of dishonest conduct, if established by evidence. Of course, it is unnecessary to plead evidence.
I also reject Mr Egan’s submission that dishonesty cannot be pleaded if it is possible there is an innocent explanation for the conduct. I refer to the analysis above. In addition, I observe that there must, of course, be a proper basis for a plea. Mr Egan does not assert that there is no proper basis nor that the Co-operative has no real prospect of success in respect of the allegations of dishonesty.
Claims for loss and damage
Mr Egan says the Co‑operative does not plead alleged services were not provided at all, or are of no value. He submits it must plead there were no services provided at all to establish loss and damage.
The analysis in the preceding section of this ruling applies here. It will be a question of evidence at trial as to whether the Co‑operative can establish that it suffered loss and damage by reason of paying for services it did not receive. Whether these are some or all services is also a question for trial. I do not consider that the claim for loss and damage has no real prospect of success. Further, Mr Egan is clearly on notice of the case he must meet.
Mr Egan’s objections to existing pleadings
The Co-operative made a ‘global’ submission that Mr Egan is mounting a strike out application. It points to his attack on parts of the pleading that are not subject to amendment. I agree that objections to parts of the claim not being amended are akin to a strike out application. It is not permissible to attack them on an application by the opposing party to amend. The parts of the PADAC that are not being amended are not before the Court in this application and the objections to them cannot therefore be sustained. Mr Egan has provided a defence and particulars in response to the counterclaim. If he wished to make a strike out application in relation to the counterclaim as originally drafted, it should have been made prior to his plea in response to it.
Turning now to the PADAC. The sub-headings below, save for the first, are taken from the PADAC.
Relationship and duties
Paragraph 126 is discussed above. I will now address further submissions on it.
The Co‑operative says paragraph 126 set outs the ongoing connection and multiple roles that Mr Egan had with it, that he was an officer within the meaning of the CA and so had certain duties. It says this pleading sets out the duties and particulars. It refers to a written agreement with Mr Egan and some particulars of it. It says the indicia of the relationship between Mr Egan and the Co‑operative closely resembled an employment relationship, although he was not an employee. The Co‑operative says that is how the fiduciary duty of loyalty arose.
On the other hand, Mr Egan says that the pleading as to why he is alleged to be an officer under the CA is convoluted and that the Co‑operative should have just pleaded that ‘at all material times, Mr Egan was an officer of the Co-operative’. Instead, Mr Egan says the Co‑operative has pleaded a convoluted series of appointments between 2010 and 2013. He says the words ‘relevant periods’ as appear in the particulars to paragraph 126 in relation to his being retained as an independent contractor CEO, make no sense.
Mr Egan queries the relevance of the written contract agreement dated 19 November 2010 referred to in paragraph 127, where it is pleaded that Mr Egan entered into an agreement with the Co‑operative to perform the duties of the CEO for two years. He queries the relevance of the agreement in circumstances where there is no allegation of breach of contract. In relation to paragraph 127, he queries the reference to the contract agreement in the particulars. He asks what cause of action it relates to. He says it has nothing to do with the case. He says there is no allegation of a variation which gives rise to a cause of action.
Mr Egan queries the duties that the Co‑operative alleges in paragraph 128. For instance, he queried what ‘in effective control’ means in paragraph 128(c) and his duty to ‘monitor and oversee’ the expenditure of the Co‑operative’s funds in carrying out its purposes and objects, as alleged in paragraph 128(f). He says that it is not alleged that these duties are implied terms. Rather, it says they arose expressly or as a matter of inference. The particulars do not identify with precision which parts of the contract contains those terms. It is, Mr Egan says, a confusing allegation.
Mr Egan queries why the Co‑operative pleads in paragraph 129 that he had access to various things such as the computer/IT system. He asks whether that is a material fact and what cause of action arises from a right of access to information facilitates. He queries what a right of access means in respect of a breach or claim for damages.
Mr Egan says that the particulars of his status as an officer under the CA pleaded in paragraph 132 are circular and confusing. He says that the Co-operative should just plead he is an officer.
Mr Egan objects to paragraph 134(c) which pleads that he had a duty to remain loyal to the Co‑operative. He concedes that this duty was not the subject of amendment and predates the PADAC, but says that he objects to it as ‘wrong in law’.
Analysis
Mr Egan’s further submissions regarding paragraph 126 are nit-picking.
Mr Egan’s challenge to the particulars of paragraph 127 on the basis the contractor agreement is irrelevant overlooks the fact Mr Egan pleads a contractor agreement in his defence. It is open to the Co‑operative to plead the agreement as a material fact it relies upon. Paragraph 128 relies upon the contractor agreement in respect of the duties which the Co-operative says Mr Egan was required to perform.
The alleged duties in paragraph 128 are said to arise expressly or as a matter of inference from various facts. Particulars are then cited. The Co‑operative is not confined to the language of the contract to describe the duties that it says Mr Egan owed it in circumstances where it alleges that he had obligations arising from statute and in equity. As to the various duties described, it will be a matter for trial as to whether or not Mr Egan had those duties as CEO. I reject his submission that phrases such as ‘monitor and oversee’ should not be allowed. It is a question of fact as to whether he had responsibility to manage and oversee the expenditure of funds as alleged. It may be, for example, that the CEO position description states such a duty. Again, that is a question for trial.
Mr Egan queries how the pleading in paragraph 129 regarding access to computer/IT systems and financial and banking records can be relevant and how it is a material fact. Given it is alleged that he unlawfully authorised payments and that there are no records of certain transactions, this plea may be relevant.
I reject Mr Egan’s submission that the amendments to paragraph 132 are circular and confusing. The amendments have separated the 2010–12 CEO period and the 2013 CEO period. The amendments provide particulars which refer to Mr Egan’s status as an officer under statute. They plead his status as an officer can be inferred from facts related to his position as CEO.
The fiduciary duties pleaded in paragraph 134 were originally pleaded in paragraph 132 of the Co-operative’s defence and counterclaim dated 5 July 2017. Mr Egan’s defence and cross-claim dated 16 October 2017 pleads that paragraph is embarrassing ‘as it pleads a conclusion of law’ and denies each and every allegation. As is evident below, one of the Co-operative’s causes of action is breach of fiduciary duty.
As a preliminary point I observe that whether there is a fiduciary relationship between Mr Egan and the Co-operative is a question for trial
Paragraph 134 has been amended by the provision of particulars relating to the alleged fiduciary duties pleaded in that paragraph. The particulars should be allowed.
I now turn to paragraph 134(c). It concerns the allegation that Mr Egan had a fiduciary duty to remain loyal to the Co‑operative. Mr Egan objected to it, notwithstanding it is not subject to amendment.
As paragraph 134(c) is not amended, it is not before me as part of the Co‑operative’s application. The same fiduciary duty of loyalty is however pleaded as part of the amended pleading in other paragraphs of the PADAC discussed below. Accordingly, it is convenient to discuss it here.
The Co‑operative referred the Court to Digital Pulse Pty Ltd v Harris[30] (‘Digital’) in support of its pleading that Mr Egan had a fiduciary duty ‘to remain loyal to [the Co‑operative]’.[31] This plea is additional to the plea that Mr Egan owed the Co‑operative fiduciary duties under the no conflict and no profit rules (‘the proscriptive duties’).[32] In Digital, Palmer J refers to a duty of loyalty under fiduciary law, describing it as follows:
The duty of loyalty requires that an employee not place himself or herself in a position in which the employee's own interest in a transaction within the sphere of the employer's business operations conflicts with the employee's duty to act solely in the employer's interest in relation to that transaction. A fortiori, an employee may not take for himself or herself an opportunity within the sphere of the employee's business operations without the employer's fully informed consent.[33]
[30](2002) 40 ACSR 487.
[31]See, eg, PADAC [134(c)].
[32]Ibid [134(a)–(b)].
[33]Digital (2002) 40 ACSR 487, [22].
The duty of loyalty described by Palmer J is a reference to the no conflict and no profit rules. The same can be said of the explanation of a fiduciary duty of loyalty in Hospital Products Ltd v United States Surgical Corp.[34] In that case, Mason J stated the duty may be breached by an employee ‘if he secretly makes arrangements during his employment to compete with his employer after termination of the employment.’[35]
[34](1984) 156 CLR 41.
[35]Ibid 105.
In Hoh v Frosthollow Pty Ltd[36] Derham AsJ clarified a misunderstanding in relation to the terminology in question:
When his Lordship spoke of the distinguishing obligation of a fiduciary being the obligation of loyalty, he was not identifying another duty, but a special feature of the relationship that gives rise to the proscriptive duties.[37]
[36][2014] VSC 77 (‘Hoh’).
[37]Ibid [65].
Whilst Derham AsJ confined his conclusion to ‘present purposes’, the principle that the boundary of fiduciary duties is that of the proscriptive duties applies here.[38]
[38]Ibid [67]–[69].
The fiduciary duty of loyalty pleaded in the PADAC is not a duty separate and distinct from the pleaded proscriptive duties. Indeed, the latter constitute its precise formulation. Pleading it as a separate and distinct duty has no real prospect of success. I will disallow the amendments sought where it is pleaded in the PADAC.
I will give the Co‑operative leave to amend its existing pleading to remove reference to the fiduciary duty of loyalty.
Conduct in 2010–12 as CEO of the Co‑operative[39]
[39]The headings hereon, excluding those headings which are italicised, reflect the headings in the PADAC for ease of reference.
The Co‑operative says that paragraph 141, which has been amended, is a sub-set of the fraud claim where the proposition advanced is that when Mr Egan engaged a consultant, Ms O’Brien, she made it plain to him that she was no longer available to provide consulting services. This is not in dispute between the parties. The Co‑operative submits that the particulars to paragraph 141 refer to a critical email communication. After the date of that email, it is alleged in paragraph 142 that Ms O’Brien did not perform any further work for the Co‑operative, and the residual funds were directed to another consultant, Mr Reid. Money sent by her to Mr Reid was allegedly not returned to the Co‑operative. The amendments to paragraph 147 are that Mr Reid received the payment of $22,500.
In respect of paragraphs 141 and 142, which concern allegations regarding Ms O’Brien, Mr Egan asks where does the allegation go?
In respect of paragraph 147, Mr Egan says that it is alleged that Mr Reid received the payment but that the notation on the banking payment system describes the payment as one to Ms O’Brien. Mr Egan says that this seems to contradict the allegation that Mr Reid received the payment. Further, he says that essentially it is an allegation that a third party (Ms O’Brien) said something and not an allegation against him.
Analysis
Paragraphs 141 and 142 are material facts that the Co‑operative relies upon. In them, it pleads that Ms O’Brien said that she was unable to and did not perform certain project work. They are relevant to the allegations that Mr Egan directed that Ms O’Brien be paid $5,000 and then directed that she pay the monies received to ‘A Reid Contracting’. They are also relevant to the allegation that a payment of $22,500 was recorded on the Co‑operative’s general ledger as a payment to Ms O’Brien but was actually paid to ‘A Reid Contracting Service’.
As to paragraph 147, it is a pleading that Mr Andrew Reid of A Reid Contracting Services received the $22,500 referred to above. Mr Egan complains that this is contradicted because the payment was described as one to Ms O’Brien. On its face, the invoice directs payment to be made by direct deposit to ’A Reid Contracting Services’, and provides the bank account number pleaded at paragraphs 146 and 148.[40] In his defence to paragraph 147, Mr Egan denies the allegations and refers to paragraphs 133 and 144 of his defence. In paragraph 144(c) he pleads that the invoice included the statement: ’Please note: As discussed and agreed, final Payment as above to be directed to A Reid Contracting Services and associated staff time to be invoiced to the same’. At paragraph 144(d) he says the invoice was signed by Ms Stead (Finance Manager) and a director of the Co‑operative (whom he cannot presently identify). In paragraph 144(e) of his defence, Mr Egan says that he received $20,000 on or about 15 February 2011 for part payment of services rendered in respect of delivering the tender projects. In paragraph 5 of his particulars,[41] Mr Egan says the sum of $20,000 was received from Mr Reid. The tender projects are referred to in paragraph 133 of his defence as the development of the Co‑operative’s strategic plan to implement the Closing the Gap Program and its business plan for a Youth Drop-in Centre.
[40]Exhibit ‘JDE-12’ to the first Edgar affidavit contains a copy of an invoice from Ms O’Brien dated 10 February 2011, no. MVAC 0002 and in the amount of $22,500. It has a signature on it next to director which reads “P.Egan”.
[41]Mr Egan’s further and better particulars dated 11 May 2018.
The recipient of the monies is a question of fact to be ventilated at trial. I make no finding about that. Further, the allegation that Ms O’Brien did not receive the payment is not the subject of amendment. As to the objection that this is not an allegation against Mr Egan, paragraph 148 of the PADAC alleges that he directed, authorised or facilitated the payment. Paragraph 147 (and other paragraphs) pleads the material facts that the Co‑operative relies upon to make the allegation.
The amendments to paragraphs 135–48 are allowed.
Payment to Mr A Reid of $40,000 in early February 2011
The Co‑operative says paragraphs 149–72 of the PADAC refer to payments made to Mr Reid for consultancy fees for which it has no record of any consulting services provided by him or any other person. The invoices from Mr Reid describe the services being invoiced. The Co‑operative says no work was done by Mr Reid or any other person that matches the descriptions on the invoices. It says that a letter of demand was issued to Mr Reid, who has not responded substantively to it. The Co‑operative has pleaded the material facts of the invoices, that payment was authorised and paid to a particular bank account and that it has no record of consulting services provided by Mr Reid or any other person fitting that descriptor.
The letter of demand was dated 8 June 2018 and attached various documents.[42] The reply from Mr Egan’s solicitors, dated 13 June 2018, did not explain the payments to Mr Reid but outlined preliminary comments.[43] The next significant correspondence, dated 31 July, attacked the proposed pleading.[44] The invoices are the subject of the letter of demand. There was an opportunity for Mr Egan to give a full explanation consistently with s 23 of the CPA, but the Co‑operative received nothing.
[42]Exhibit ‘DH-5’ to the first Hartnett affidavit.
[43]Exhibit ‘DH-7’ to the first Hartnett affidavit.
[44]Exhibit ‘JDE-9’ to the first Edgar affidavit.
Exhibit ‘DH-1’ to the first Hartnett affidavit is a subpoena of a bank statement. The word ‘contracting’ is spelt incorrectly twice— firstly as ‘contracking’, then as ‘Contrackting’. The Co‑operative argues that while mistakes can occur in a rush, it provides the basis for an inference that Mr Reid was a tradesman and there were clearly problems with the expressions just on bank statements. The Co‑operative questions how Mr Reid performed policy review and cultural liaison work. It asks: how is it that Mr Reid did this work and yet no work product under his name is available to it even after its request for an explanation?
On the other hand, Mr Egan says that the allegation is not that he gave Mr Reid a particular direction, but rather that he was in the position to do so. It is alleged that Mr Egan ‘is believed to have signed a copy’ of Mr Reid’s invoice in the particulars to paragraph 151 of the PADAC. It is not alleging that he did.
In paragraph 152 it is pleaded that the Co‑operative‘s internal ledger recorded a Reid invoice as ‘consultancy fees’. Mr Egan asks where that allegation goes.
Mr Egan says that from paragraph 153 critical problems begin to arise. There is no record of consultancy services. How does he plead to that? What records? What database? When? What documents have they looked at? Who looked at them? Some are a forensic accountant but they do not provide the report. Mr Egan says this is exactly the type of speculative claim that the case law prohibits and should not be made. He says he did not know what happened, therefore the Co‑operative cannot plead fraud or dishonesty by him. The Co‑operative cannot simply say they do not know what the invoice is for and thereby plead fraud.
Mr Egan says that ‘believed to be signed’ is not sufficient to show that he authorised the invoice. Just because the invoice is signed does not mean it is authorised for an improper purpose. There is no indication that there was no commercial or other basis for Mr Egan to authorise payment of the invoices, however, that is not particularised. There is no evidence. None of the allegations are of material facts giving rise to dishonesty. The Co‑operative’s obligation and onus is to plead the allegations with precision so that they can be pleaded and denied.
In paragraph 169, it is pleaded that Mr Egan, as a director, authorised the payment of Mr Reid’s invoice. Mr Egan asks, what are the particulars of the authorisation? The particulars refer to paragraph 151. All that can be inferred from that is the fact he was the CEO. He says those particulars do not support the authorisation or say how as a director he authorised the payment.
In paragraphs 171 and 172, the Co‑operative pleads that there was no commercial or other proper basis for Mr Egan to authorise the payment. Mr Egan submits that it is incumbent upon the Co‑operative to make a positive allegation and then prove it on the facts, but it cannot plead it does not know.
Analysis
Paragraphs 150, 151 and 152 are pleadings of a material fact that the Co‑operative relies upon. It is alleged that Mr Egan authorised payment of an invoice to Mr Reid in the amount of $40,000. On its face, the invoice directs payment to be made by direct deposit to ‘A Reid Contracting Services’ and provides the bank account number pleaded at paragraph 151.[45] That is an issue to be ventilated at trial. It is pleaded that payment of the invoice was recorded as consultancy fees. Paragraph 153 says there is no record of any consulting services provided. This is a material fact that the Co‑operative relies upon. Paragraph 154 alleges that there was no commercial or other proper basis for Mr Egan to authorise the payment of the consulting fees. The question of whether any work was done by Mr Reid is a question of fact. It is more appropriately ventilated at trial.
[45]Exhibit ‘JDE-12’ to the first Edgar affidavit contains a copy of an invoice from A Reid Contracting Services dated 3 February 2011, invoice no. 4 in the amount of $40,000. It has a signature on it next to the word ‘director’ which reads ’P.Egan’.
I refer to the analysis above concerning pleas of dishonesty.
The amendments to paragraphs 150–4 will be allowed.
As to paragraph 169, Mr Egan seeks particulars of authorisation. The particulars amended in the PADAC refer to the particulars to paragraph 151, which refer to authorisation being inferred from Mr Egan’s position as CEO and other facts. The particulars to paragraph 169 also plead that the authorisation is to be further inferred from a signature on the invoice believed to be that of Mr Egan. These particulars arguably support the allegation that Mr Egan authorised the payment. There is no submission that paragraph 169 has no real prospect of success. I will allow these amendments.
As for paragraphs 171 and 172, the analysis for paragraphs 153 and 154 applies. The amendments will be allowed.
Mr Egan 2010–12 CEO/director conduct
In paragraph 173, the Co‑operative says that in his capacity as director, Mr Egan authorised certain conduct. Amendments to that paragraph refer to an invoice from Mr Reid believed to be signed by Mr Egan.
The Co‑operative says paragraph 175 is a pleading of fraud which particularises Mr Egan’s knowledge of dishonesty. Paragraph 176 particularises loss and damage. The Co‑operative says that paragraph 177 relates to the plea, in the alternative, of a breach of fiduciary duties. In response to Mr Egan’s attack on paragraph 177(c), that is, that the allegation that he breached his fiduciary duties by failing to remain loyal to the Co‑operative in the exercise of his CEO duties, the Co‑operative says it relies on the obligations that employees have for duties of loyalty. What it will contend at trial is that because Mr Egan performed CEO duties and the like, and because he was a senior officer, he was akin to an employee with respect to the indicia of employment relationships and therefore owed a duty of loyalty as part of his fiduciary obligations to the Co‑operative. It says equity can expand the category of fiduciary relationships and the content of those categories is not closed. Further, this pleading is not part of the application for amendment. There has never been an application to strike it out and yet now that is effectively what is being done. The written contract is pleaded. Mr Egan refers to the contract agreement dated 24 November 2010 in paragraph 127 of his defence.
Paragraph 180 is pleaded as an alternative to the fraud allegation. It concerns the breach of s 221 of the CA. The amendment particularises that pleading.
Mr Egan says that paragraph 173 refers to him in his capacity as director. He queries why the directorship suddenly gives rise to something new or relevant and asks what it could possibly relate to. Mr Egan asks where the explanation is of the allegation in paragraph 173(c) that Mr Egan authorised and/or directed the Co‑operative to make various payments to the benefit of Andrew Reid, or alternatively to Mr Egan himself via Mr Reid. He asks where it is said that he has done that for the benefit of an uncontracted third party. In respect of other sub-paragraphs, such as (e)–(h), Mr Egan says these are not dishonesty allegations but just allegations he has authorised or directed payments. In respect of the services, it is said they were never received. Where are the particulars of that? Is the Co‑operative now saying it knows it never received the services?
Mr Egan says that paragraph 173 has already been pleaded.
In respect of paragraph 175, which relates to the appointment of Mr Reid to provide contracting services, Mr Egan says this is a staggering allegation of dishonesty. He says that dishonesty is alleged on the basis of: ‘It is believed that the payments made on certain invoices were ultimately on‑paid to Egan.’ Mr Egan says this is not an allegation of dishonesty, nor that these transactions were a sham, nor that the Co‑operative never received the work. He submits the allegation is contrary to that: the Co‑operative received work from someone not qualified to give it. What work did Mr Reid do, he asks? He submits it is critical to the allegation of dishonesty to say he got paid for something he never did.
In respect of paragraph 176, which alleges loss and damage, Mr Egan says it is unclear why the word fraud has been deleted. He asks by what cause of action is the loss and damage sought? He submits it is pleaded by reason of conduct, rather than by reliance on a cause of action. He asks where the particulars of loss and damage are. He queries whether it is said that the services were improperly rendered and submits that the Co‑operative pleads loss and damage solely because the payments went out.
Mr Egan challenges paragraph 177(c). He says the particulars refer to him being an officer and attending board meetings. Mr Egan queries how that can particularise the alleged breach of duty. He says the particulars do not assist. Mr Egan knew of Mr Reid’s skill set. He asks how that is profiting or a breach of loyalty. Mr Egan queries how he is alleged to have known that Mr Reid was not qualified. He also queries what evidence will be called as to who is qualified. He queries why that is a breach of the conflict, profit and loyalty rules. Again, Mr Egan refers to the pleading that ‘It is believed that payments made on invoices were ultimately paid to Egan’. He says that in the absence of a factual basis, that is insufficient to found a claim for breach of duty. He asks why it is a conflict that Mr Reid was paid for work he did not perform, how was he profiting from that, why is it alleged he was disloyal and what work did Mr Reid not perform? The breach of loyalty is not particularised. Mr Egan says that a lack of fundamentals of proper pleadings, plus confusion and circular particularisation means that it is hard for anyone pleading to sensibly do so and also hard for the trial judge to discern what the Co‑operative is trying to prove and what is relevant to proof.
In respect of paragraph 180, which alleges that Mr Egan did not act honestly, he asks why is it alleged that he was dishonest. He asks why making payments to Mr Reid was dishonest. He refers to the particulars alleging that he and Mr Reid had a friendship and says that is not dishonest. He refers to the particulars concerning his appointment of Mr Reid as a contractor and says that is not dishonest. He refers to the pleading ‘[i]t is believed that the payments made on certain invoices were ultimately paid to Egan’ and reiterates the issues above. He refers to the particulars that Mr Egan knew of Mr Reid’s skill set and knew that he was neither qualified nor experienced nor possessed the requisite skills to carry out the cultural and health policy work. He asks which work did he not possess the skill set to perform, why it is dishonest to pay for the work and why he was not paid for the work performed. If there is an innocent explanation, fraud should not be alleged.
In respect of paragraph 181, Mr Egan asks what sum the Co‑operative seeks to recover. There are no particulars given.
Analysis
Paragraph 173 of the PADAC is an amendment of paragraph 145 of the counterclaim. It alleged Mr Egan acted dishonestly and fraudulently in respect of the alleged payment of invoices. In his defence (paragraph 145), Mr Egan denied the allegations and said further that by operation of an amended contractor agreement he was entitled to payment for the sum of $76,140. The amended pleading is that he authorised and/or directed payments during the 2010–12 CEO period, and provides further particulars.
The analysis above concerning allegations of dishonesty is applicable. The amendments to paragraphs 173–5 and 180 are allowed.
As to paragraph 176, I refer to the analysis above concerning loss and damage; the amendment is allowed. The amendment adds further amounts to the loss and damage to paragraph 146 of the original pleading. Mr Egan denied the original allegations in paragraph 146 of his defence.
As to the particulars to paragraph 177, they set out the material facts that the Co‑operative relies upon to allege breach of the fiduciary duties pleaded. It is unnecessary for the Co‑operative to plead the evidence it relies upon. I otherwise refer to the analysis above regarding pleadings of dishonesty.
For completeness, I add that paragraph 177(c) was challenged by Mr Egan. It pleads a fiduciary duty of loyalty. The analysis of paragraph 134(c) above applies and the Co‑operative will be given leave to amend it accordingly.
In respect of paragraph 181, Mr Egan says it does not state the amount of loss and damage for the alleged breach of s 221 of the CA. However, paragraph X of the prayer for relief states that the sum of $149,500 is sought from Mr Egan by reason of his breach of s 221. I will allow the amendments to paragraph 181.
Mr Egan conduct as a contractor CEO in 2013–14
The Co‑operative says that paragraphs 182 and 183 relate to the period in 2013 when Mr Egan was its caretaker CEO. Paragraph 184 pleads terms of the 2013 CEO contract. Paragraph 185 pleads his status under various legislation.
Mr Egan says that the particulars to paragraph 183 provide that the agreement between the Co‑operative and Binmada in 2013 for Binmada to provide Mr Egan’s services as caretaker CEO are to be implied. Paragraph 184 specifies the terms of the contract that are said to be implied. Mr Egan queries how the term in sub‑paragraph (c) that he sign invoices is necessary to be implied for the business efficacy of the contract. Mr Egan queries how the sign-out term is to be implied by the fact alleged in the particulars to sub-paragraph (c), that is, that the sign‑out function was recorded in an email dated 27 August 2013. Mr Egan says this is six months after the contract was entered into and queries how it can therefore be implied. He says one is left in complete confusion about the 2013 CEO agreement and its relevance.
In respect of paragraph 185, Mr Egan says that this pleading is a repetition.
Analysis
The terms of the 2013 CEO Contract alleged in paragraph 184 is a question for trial. Mr Egan queries how the terms of his contract could be implied from an email that post-dates the contract. However, it is not alleged that the email constituted an implied term of contract. Rather, what it says is the fact of the alleged contractual term is recorded in the email. Whether or not it does is a factual matter for trial.
Paragraph 185, which Mr Egan says is a repetition, pleads that he was in a unique position of power and influence in respect of the Co‑operative’s operations, expenditure of public funds and decision-making. These particulars have not previously been pleaded. Paragraph 185 alleges that Mr Egan was an officer and owed fiduciary duties, and was a director of Binmada during the 2013 CEO period and during the time Binmada supplied CEO services in 2013/14. This has not previously been pleaded in relation to the 2013/14 period.
2013–14 invoicing conduct
The Co‑operative says the pleading in paragraph 186 relates to invoicing conduct. The Co‑operative pleads that in September 2012, Binmada signed a two year executive consultant contract to provide Mr Egan’s services and on 30 November 2012, it terminated the contract and was paid a termination amount of $64,000. It pleads that payments were subsequently made to Binmada. It relies upon the material facts pleaded in paragraph 186.
Paragraph 187 pleads that Mr Egan was an officer of the Co‑operative during the whole period of December 2010 to October 2013. The Co‑operative concedes this may be repetition and could be removed from the pleading.
Mr Egan asks how the plea in paragraph 186 as to the signing of the consultant contract is relevant. He says it goes nowhere and is repetitive, as is paragraph 187.
Analysis
Paragraph 186 will be allowed, as it pleads the material facts that the Co‑operative relies upon in respect of the allegations concerning payments to Binmada that follow. Paragraph 187 is repetitive and will be disallowed.
Payment to Binmada
The Co‑operative says these paragraphs relate to Binmada receiving payments under invoices issued to it by other persons. At paragraph 188A, the duty of loyalty is again pleaded.
The Co‑operative pleads at paragraph 189 that it has no record of, nor located any work or product in respect of, any services provided by Mr Reid in the relevant period.
Paragraph 190 pleads a payment recorded in the Co‑operative’s ledger to Mr A Reid Contracting for consulting. Paragraph 191 pleads the ledger entry was false and erroneous. The Co‑operative concedes that the pleading contains an error which should be corrected.
The Co‑operative says that by paragraph 192, it is pleaded that Mr Egan or Binmada, not A R Contracting Services, received the funds.
By paragraph 193, the Co‑operative pleads Mr Egan breached s 221(1) of the CA and his alleged fiduciary duties. It says the invoices were issued and subsequently paid to Binmada, rather than to the account of the person who purported to invoice.
The Co‑operative says the case against Mr Egan is made abundantly clear to him.
Mr Egan says that the fiduciary duty to remain loyal pleaded in paragraph 188A(c) is bad in law.
He says the allegation concerning the ledger entry in paragraph 191 does not plead that Mr Egan or any other person made the false and erroneous ledger entry. There is no explanation as to why it is false or erroneous.
Analysis
Paragraph 188A(c) concerns the alleged duty of loyalty and will be disallowed.
Paragraph 191 contains an error, as conceded by the Co‑operative. It appears to be typographical as there is a redline through some words and they have not been replaced. Paragraph 191 will be disallowed and the Co‑operative will be given the opportunity to re-plead it.
Excel Corporate Services invoice dated 15 April 2013
Paragraphs 195-202A are new pleadings. For completeness, because they were the subject of written submissions,[46] I will now address them.
[46]Schedule A to Mr Egan’s written submissions filed on 21 August 2018; see also the first Edgar affidavit.
Paragraphs 195–200 allege that Mr Egan created or modified an invoice from Excel Corporate Services in the sum of $27,500 for consulting,[47] and that the Co‑operative has no record of any consulting services provided in the relevant period and has not located any work product produced in respect of the invoice. It is alleged the invoice was paid to an account operated by Binmada, not to Excel Corporate Services. Paragraph 201 alleges Mr Egan breached s 221(1) of the CA and his fiduciary duties in respect of this conduct. Paragraph 202 pleads loss and damage as a result of the breaches in the sum of $27,500, and paragraph 202A seeks an account from Mr Egan and/or Binmada in that sum.
[47]Exhibit ‘JDE-13’ to the first Edgar affidavit. The invoice is stated to be from Excel Corporate Services and is dated 15 April 2013, invoice no.9 and in the amount of $27,500.
Mr Egan’s solicitor has exhibited reports, a letter from Ms Mary Mcilhone of Excel Corporate Services dated 20 March 2013 confirming receipt of the project brief and fee and correspondence between Mr Egan and others, and minutes of meetings.[48] Mr Egan’s solicitor deposes that he is instructed work was done in relation to the invoice.[49]
[48]Exhibits ‘JDE-14’–‘JDE-18’ to the first Edgar affidavit.
[49]First Edgar affidavit, [49].
Whether or not the work invoiced for was done is a question of fact for trial. It is evident from the affidavit that Mr Egan understands the case he must meet.
I refer to the analysis above concerning pleas of dishonesty.
The amendments are allowed.
A Reid Contracting invoice no. 35
The Co‑operative says it is patently clear on the material facts pleaded what it says occurred when Mr Egan was its officer and breached his statutory duty of honesty.
Mr Egan says bald assertions are made without any explanation or proper particularisation in paragraph 208. He asks what it is said he diverted, permitted, retained, and how he is said to have abused his position. He asks why it is said he had no entitlement to receive payments that were made.
Analysis
As to paragraph 208, I have already dealt with it above in the context of the general dishonesty objection. For completeness, I do not accept Mr Egan’s submission that the allegations are bald assertions without any particularisation or explanation. Certainly paragraph 208 is not particularised, however it must be read in context. Paragraph 208 commences with the words ’[i]n the premises pleaded above’. Accordingly, it is to be read with preceding paragraphs. Preceding paragraphs 203–7 plead that an invoice in the name of ‘A R Contracting Services’ in the sum of $6,875 was not paid to A R Contracting Services, but paid to an account operated by Binmada. Paragraph 208 pleads that Mr Egan breached CA s 221 and his fiduciary duties in respect of the diversion of those funds for his own benefit when he was not entitled to them.
Paragraph 208(b)(iii) refers to the duty of loyalty and, adopting the analysis above with respect to that duty, will be disallowed.
Putting to one side paragraph 208(b)(iii), it cannot be said that paragraph 208 has no real prospect of success. Further, it pleads the case which Mr Egan must meet and will be allowed.
Excel Corporate Services invoice dated 10 May 2013
Mr Egan says that it is not known what the invoice pleaded in paragraph 210 is for or what work was done.
In paragraph 216A, Mr Egan says that the Co‑operative states it ‘seeks an account from Egan and/or Binmada’ but there is no legal concept of ‘an account’. One can take an account. There are a number of claims for an account permeating the prayer for relief.
Analysis
In respect of paragraph 210, the details of the invoice are not particularised. However, it is described by date, number, business name, amount and description of services in paragraphs 210 and 211. Further, it is stated to be available for inspection. Paragraph 210 is allowed.
In respect of paragraph 216A, which seeks ‘an account from Egan and/or Binmada in the sum of $10,000’, this should be read with the prayer for relief. Paragraph DD seeks the taking of an account of profits from Mr Egan. Paragraph KK seeks ‘[a]ll necessary accounts and enquiries’ as against Binmada. Breach of fiduciary duties is pleaded and may give rise to an equitable remedy. The seeking of an account is a remedy available in equity.[50] The amendment will be allowed.
[50]See description by the learned authors JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane’s Equity Doctrines & Remedies (LexisNexis Butterworths, 5th ed, 2015) 910–11 [26-035].
August 2013: Egan doubles his CEO contractor charges
The Co‑operative says that paragraph 238 pleads the increase in amounts paid to Mr Bowden on a fortnightly basis.
Mr Egan says the claim in paragraph 238 goes nowhere as there is no allegation of breach nor claim for additional payments made.
Analysis
Paragraph 238 pleads that Binmada increased the CEO contractor fee to the Co‑operative to $16,500 per fortnight. Invoices are particularised. Paragraph 238 pleads material facts that the Co‑operative relies upon. The remuneration paid to Mr Egan by the Co‑operative is clearly relevant as he pleads to it in his defence.[51] The amendment is allowed.
[51]See discussion above in relation to paragraph 145 of Mr Egan’s defence.
SMP Architects invoice no. 259
The Co‑operative says these pleadings relate to an invoice from SMP Architects paid to an account operated by Binmada.
Mr Egan says that there is no explanation as to why there is a lawful entitlement arising from the allegations in paragraphs 245B–50.
Mr Egan says that in relation to the allegation in paragraph 251, it is not pleaded why he was dishonest nor why there was a breach of director’s duty. It is not pleaded why there is a loss.
Of paragraph 253, Mr Egan says this is a claim for mistake without explanation.
Analysis
Paragraphs 246–50 relate to the allegation that invoice no. 259 from ‘SMP Architects’ dated 19 December 2012 in the amount of $22,000 was received by the Co‑operative and paid by it to Binmada.[52] Paragraph 250 pleads that Mr Egan and Binmada had no lawful entitlement to receive and keep those funds. This should be read in context. Paragraph 250A pleads Mr Egan knew the payment had been made to Binmada and it was not entitled to receive the funds.
[52]Exhibit ‘JDE-19’ to the first Edgar affidavit.
Mr Egan’s solicitor refers to the Co‑operative’s application for funding of $22,000 regarding housing accreditation plans and the invoice relates to the proposal of SMP Architects to assist.[53] The funding grant refers to three milestones. He deposes that the grant of $22,000 was approved in August 2011.[54] There is exhibited email correspondence dated 15 November 2012 from Ms Debra Stead, Finance Manager of the Co‑operative, chasing payment from the Department of Human Services for the ‘accreditation invoice or invoices’. Mr Edgar refers to email correspondence dated 23 November 2012 to the effect that the Department of Human Services requested an invoice. This email correspondence states that a new invoice for milestones 1 and 2 in the amount of $15,400 is requested and provides the descriptor that the invoice should contain. The invoice from SMP Architects referred to above is for $22,000 and is stated to be for completion of work.
[53]First Edgar affidavit, [52]–[59]; exhibits ‘JDE-20’–‘JDE-22’ to that affidavit.
[54]Second Edgar affidavit, [5]; see also letter to the Co-operative from the Department of Human Services dated 31 August 2011 contained in exhibit ‘JDE-23’ to that affidavit.
Whether or not the work invoiced for was done is a question of fact for trial. It is evident from the affidavit that Mr Egan understands the case that he must meet.
Paragraph 251, commencing with the words ‘[i]n the premises pleaded above’, pleads Mr Egan breached his fiduciary duties by favouring his or Binmada’s interests over those of the Co‑operative, and by obtaining and retaining the funds. It also pleads that Mr Egan breached CA s 221(1) by not ensuring there was a record that he or Binmada received the funds or diverting the funds for the benefit of himself or Binmada, and retaining the funds or assisting Binmada to do so in the knowledge there was no entitlement to do so.
The same analysis applies to paragraph 251 as that in paragraph 208 above. Save for paragraph 251(b)(iii), paragraph 251 is allowed.
Paragraph 253 pleads in the alternative that the sum of $22,000 invoiced by SMP Architects was mistakenly paid by the Co‑operative to Mr Egan or Binmada. The case that Mr Egan must meet is pleaded and he does not allege that there is no real prospect of it succeeding.
I refer to the analysis above concerning pleas of dishonesty.
The amendments are allowed.
SCHEDULE OF PARTIES
8 October 2018
S CI 2017 01370
| STEVEN BOWDEN | Plaintiff/First Defendant by Counterclaim |
| - and - | |
| MURRAY VALLEY ABORIGINAL COOPERATIVE | First Defendant/Plaintiff by Counterclaim/Defendant by Cross-claim |
| LEIGH OTTREY | Third Defendant by Counterclaim |
| PHILIP EGAN | Fourth Defendant by Counterclaim/Plaintiff by Cross-claim |
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