Bullhead Pty Ltd v Brickmakers Pty Ltd
[2015] VSC 520
•30 September 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2015 00106
| BULLHEAD PTY LTD | Plaintiff |
| v | |
| BRICKMAKERS PLACE PTY LTD & ORS (in accordance with the attached schedule) | Defendants |
JUDGE: | CAMERON J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 23 July 2015 |
DATE OF JUDGMENT: | 30 September 2015 |
CASE MAY BE CITED AS: | Bullhead Pty Ltd v Brickmakers Pty Ltd & ors |
MEDIUM NEUTRAL CITATION: | [2015] VSC 520 |
PRACTICE AND PROCEDURE – Pleadings - Collateral contract- Application to strike out amended defence - Rule 23.02 of the Supreme Court (General Civil Procedure) Rules 2005 - Court’s discretionary power – Strike out defence – Application dismissed – Leave not granted to amend defence.
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr W Houghton QC with Mr T Scotter | DLA Piper |
| For the Second to Twelfth Defendants | Mr M Wise | K&L Gates |
HER HONOUR:
There were three summonses before me in this matter.
First in time was a summons filed by the second to twelfth defendants in this proceeding seeking security for costs.
The second was a summons dated 15 July 2015 filed by Bullhead Pty Ltd (‘Bullhead’), the plaintiff in this proceeding, in which it sought to strike out paragraphs 19, 21(d)(i) and 24 of the second to twelfth defendants’ amended defence dated 9 July 2015 pursuant to r 23.02 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic). Although the first defendant is now in liquidation and does not appear before the Court, I will refer to the second to twelfth defendants as ‘the defendants’.
The third application was a summons dated 21 July 2015 to set aside a notice to produce which was served by the plaintiff on the defendants.
I have made orders on 23 July 2015 in relation to the security for costs application and the Notice to Produce. Accordingly, this judgment only deals with the strike out application.
The application for my determination is the plaintiff’s summons dated 15 July 2015 in relation to the strike out of paragraphs 19, 21(d)(i) and 24 of the defendants’ amended defence dated 9 July 2015.
Firstly, I will set out some background.
Background – a brief overview
The plaintiff, Bullhead, is a unit holder in the Brickmakers Place Unit Trust (‘the Trust’) and a shareholder in the first defendant (‘the Trustee’).
The second to sixth defendants are unitholders in the Trust and shareholders in each Trustee. The seventh to twelfth defendants are directors of the Trustee and each is also individually a director of one of the second to sixth defendants.
The Trust was established to develop ‘The Brickmakers Place,’ a residential development in Essendon (‘the Property’). The Trustee was incorporated in December 2007 in order to act as trustee of the Trust.
The second to fifth defendants (‘the Initial Partners’) entered into a unit trust deed on 27 February 2008 (‘the Unit Trust Deed’) and a unitholders agreement on 14 March 2008 (‘the Unitholders Agreement’).
The key issue in dispute in the proceeding is whether, in breach of the Unitholders Agreement and the Unit Trust Deed, the Trustee issued initial units in the Trust to the Initial Partners at a discounted price in breach of trust.
Background – more details
Some additional background may be of some utility at this point and in the analysis of the arguments raised by the parties.
The defendants say that on about 10 December 2007, the Initial Partners (who were Messrs Charlie, Dominic and Aldo Lastrina and Mr Peter Weda) agreed that they would purchase the Property. The Property was situated at 1018-1028 Mt Alexander Road, Essendon, and comprised four separate titles. The purchaser on the contract for sale was ‘Charlie Lastrina and/or nominee’, the purchase price was $3.65 million and the contract for sale was executed on or about 17 December 2007.
The Initial Partners originally intended to on-sell the four individual titles. This would have yielded the Initial Partners an expected profit of $2.14 million – this sum is referred to as the ‘Expected Profit’. As things transpired, this did not occur.
In the early part of 2008, the Initial Partners agreed that they would develop the property by building 43 units on it.
This agreement, referred to in the pleadings as ‘the Unit Trust Agreement’, was an oral agreement and made in conversations between the Initial Partners on or about January 2008 to March 2008.
This Unit Trust Agreement, it is said, provided that the Initial Partners would contribute to the Trust all of their right to title and interest in the contract for sale of the Property, including the Expected Profit and the moneys they had already paid towards the acquisition of the Property, including the deposit. This is what is referred to as ‘the Initial Partners’ Contribution’.
It is alleged that a term of the Initial Partners Agreement was that, in return for the Initial Partners’ Contribution, the Initial Partners (or their nominees) would be the initial unitholders of the Trust, each owning 25% of the units of the Trust. It is said that the Unit Trust Agreement comprised a term to the effect that other investors would be invited to purchase further units in the Trust in order to raise further capital to assist in the funding of the purchase of the Property and carrying out the development.
Subsequently, the Unit Trust Deed and the Unitholders’ Agreement were entered into.
It is common ground that on or about 28 February 2008, the Trustee was nominated as purchaser of the Property and subsequently settled the contract for sale, thus becoming the legal owner.
At the time of the development, the plaintiff and other unitholders held units in the Trust. The thrust of the plaintiff’s complaint is that it paid $1 per unit, whilst four of the other unitholders (the Initial Partners) paid approximately 11 cents for their initial units. It is common ground that units purchased by the Initial Partners after the purchase of their initial units (at 11 cents) were purchased at the price of $1, the same amount paid by the plaintiff.
The plaintiff’s contention is that if all unitholders had paid equally for their units, that is, $1, the plaintiff would be entitled to about 22% of the units in the Trust and therefore distributions in that proportion. It is said that the plaintiff only discovered, as it was said, ‘quite late in the piece’ that the Initial Partners had been issued, at least their initial units, at 11 cents, thus diluting the interest of the plaintiff. It is said that the effect of that dilution is that the plaintiff would only have a portion of approximately 12% of distributions, rather than 22%.
Once the development was completed, the Trustee purported to make a final distribution to the unitholders. The plaintiff’s share of that final distribution was an amount of approximately $212,000 but, having found out, it is said, about the allocation of the initial units to the Initial Partners at 11 cents, the plaintiff objects to this final distribution. The plaintiff says it should be entitled to more calculated on the basis of all unitholders purchasing all of their units at $1 cash.
The Trustee appointed administrators to the Trust. The development had been completed, and the plaintiff says that there was no question about the solvency of the Trust and that there were no other creditors. The administrators were subsequently appointed as liquidators.
The defendants, as previously referred to, say that they paid full value for their initial units at $1 each because they were entitled to what has been referred to as an ‘Initial Partners’ Contribution’. They say their cash contribution was not $1 per unit, at least for their initial units, but they contributed their equity.
The nature and construction of the obligations of the Trustee as set out in the Unit Trust Deed and the Unitholders Agreement are certainly matters of contention. It is a question of whether the Unit Trust Deed and the Unitholders’ Agreement were breached by virtue of the acquisition, by the Initial Partners, of their units at the price of 11 cents per unit. That is the nub of the matter.
But for now, and perhaps at trial, the parties’ positions are clearly defined.
Plaintiff’s submissions
The plaintiff says in plain terms that even if there was an Initial Partners’ Contribution (being the appreciation in the value of the Property) this fell into the hands of the Trustee, as it and it alone has legal title and the equitable interest in the Property. There is no room, on the plaintiff’s case, for recognition of any other person’s contribution, including the defendants. This, it is said, relies on no more than traditional concepts of indefeasibility of title. The plaintiff says that the defendants should have paid the full cash amount for all of their units (that is, $1 per unit) and there ought be no recognition for any payment ‘in kind’ or for any recognition of any injection of equity. The plaintiff submits that the defendants could have, if they chose, structured this commercial arrangement in a different way to account for their initial contribution, but they did not do so.
Finally the plaintiff says that, in any event, what the defendant says about the Initial Partners’ Contribution directly contradicts the provisions of the Unit Trust Deed (specifically clauses 1.1, 3.2 and Schedule 1) and the Unitholders Agreement (specifically clause 5).
On their face, at least in the Unit Trust Deed, those clauses suggest that the Trustee has been ‘paid’ by the Initial Unitholders the Initial Sum which is defined (exclusively) as the sum of $2.4 million in Schedule A.
Along similar lines, clause 5 of the Unitholders Agreement refers to a subscription price of $1 per unit which the parties must apply for and the Trustee must issue. Again, at least on the face of this clause, no reference is made to any contribution or payment, other than in cash.
The plaintiff’s complaint is that the constituent documents do not say that the Initial Partners would pay $65,000 for their units – equivalent to 11 cents per unit – they say that they expected cash at $1 per unit and that, as I have said, they say this is evident on the face of the documents.
Turning to the pleadings, the plaintiff contends that the particulars of the Unit Trust Agreement in the paragraphs under attack is only an oral agreement and that, in their words, the written agreement should ‘trump’ that, where there is an inconsistency. I will address the legal arguments about this inconsistency later.
But, at its least, the plaintiff says that it has suffered loss.
The defendants’ submissions
The defendants’ submission has as its focus the fact that, as it is said, immediately prior to the nomination of the trustee as purchaser, the Initial Partners owned the beneficial interest in the Property which, to them, had a net commercial value of $2.14 million. This submission appears to be one grounded in what the defendants seem to consider as common commercial sense. The defendants take issue with the plaintiff – they say regard should be given to the capital injection by the Initial Partners. They referred to, but did not press, the payment of the deposit, $265,000, also contributed by the Initial Partners.
In the course of argument, the defendants relied on three documents, handed up to the court. The defendants say it is clear from these documents that the Initial Partners intended to reap the benefits of the Expected Profit, being the equity of $2.14 million, which would be realised when the development had been completed.
The defendants say that on about 28 February 2008, pursuant to the Unit Trust Agreement, Charlie Lastrina nominated the Trustee pursuant to an oral agreement made in or about January 2008 to March 2008.
In summary, and as has been referred to, this oral agreement between the Initial Partners was to the effect that a trust ought to be created and that the Initial Partners would contribute to the trust all of their right, title and interest in the contract for sale of the property, including the Expected Profit and the moneys that had already been paid towards the acquisition of the property, including the deposit.
It is also said that this oral agreement provided that, in return for the Initial Partners’ Contribution, the Initial Partners of the Trust would each own 25% of the units in the Trust. The agreement was also said to be to the effect that other investors would be invited to purchase further units in the Trust in order to raise further capital to assist in the funding of the purchase price of the property and in carrying out the development upon that property. It appears that there was a fourth initial partner, however it was conceded, as I understand it, by both parties, that this is not relevant for the purposes of the present application.
Following on from the oral Unit Trust Agreement, it is said by the defendants that between about late January 2008 and March 2008, Charlie Lastrina, on behalf of the Trustee, offered to third parties (including the plaintiff) units in the Trust on a certain basis. That is, that those parties could purchase units in the Trust on the basis that:
(a) the Initial Unitholders had contributed to the Trust the Initial Partners’ contribution;
(b) the Initial Unitholders consider the property had a value of approximately $6 million, which was far more than the purchase price paid for the property; and
(c) Brett Buckland could purchase 600,000 units in the Trust for the sum of $600,000.[1]
[1] Amended Defence dated 19 July 2015 [19(i)].
The defendants allege that on 17 March 2008, Brett Buckland (for present purposes, representing the interests of the current plaintiff) accepted the offer.
The defendants say that, sometime after 14 March 2008 (this date cannot be presently ascertained according to the pleading), Brett Buckland caused his entity RMBC Investments Pty Ltd (‘RMBC’) (now the plaintiff in this proceeding) to execute a deed of accession and, on or about 18 March 2008, to pay to the Trustee the cash contribution of $600,000 for the units allotted to it. It then became bound by the Unitholders Agreement.
The defendants relied on three documents which they submitted establish the agreement between the Initial Unitholders and the Trustee on or about 13 March 2008 whereby it was agreed that the payment of the initial sum as defined in the Unit Trust Deed included the payment of both $260,000 in cash and the contribution of the Initial Partners’ Contribution.
These documents consist of:
(i)a typed note of Mr Arthur Stasi dated 11 March 2008 recording instructions from Carmello Lastrina. Ignoring the difference in numbers, this document refers to a potential gain to the original shareholders of $2.1 million;
(ii)a facsimile from Charlie Lastrina to Kevin Abramson of Littleton Lawyers dated 13 March 2008 instructing him that each of the Initial Unitholders will be contributing $600,000 to purchase 600,000 units in the Trust by way of $65,000 cash and $535,000 each, being their individual share of the Expected Profit, given their equity in the property. The document also contemplates a further issue of units at $1 each to these unitholders at full cash value of $1; and
(iii)a minute of a meeting of directors of Brickmakers Place Pty Ltd dated 14 March 2008. This minute records a resolution relating to the allotment to the Initial Unitholders who are parties to the Unit Trust Deed of 600,000 units for the total price of $65,000. The minute also records the allotment of 600,000 units to RMBC.
Legal submissions
Both parties relied on Hoyt’s Pty Ltd v Spencer.[2] The plaintiff in that case alleged that there was an oral agreement between the parties that the defendant would not take advantage of a term in the written lease permitting termination on four weeks’ notice. In that case, the High Court considered the nature and legal effect of collateral contracts in circumstances where they are inconsistent with a written agreement.
[2](1919) 27 CLR 133.
The High Court held that:
The truth is that a collateral contract, which may be either antecedent or contemporaneous (per Erle CJ and Byles J in Lindley v Laccy [3] and per Cockburn CJ in Angell v Duke [4] ), being supplementary only to the main contract, cannot impinge on it, or alter its provisions or the rights created by it; consequently, where the main contract is relied on as the consideration in whole or part for the promise contained in the collateral contract, it is a wholly inconsistent and impossible contention that the other party is not to have the full benefit of the main contract as made.[3]
[3]Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133, 147.
In relying on this case, the plaintiff submitted that the oral agreement between the Initial Partners is inconsistent with the Trust Deed and the Unitholders Agreement, and therefore the written agreements must prevail.
The defendants submitted that the oral agreement is not in conflict with either the Trust Deed or the Unitholders Agreement because there is nothing in those written agreements that require the Initial Partners to purchase their units in cash. The defendants say that before the Trustee was nominated as the purchaser of the property, the Initial Partners owned the beneficial interest in the Property and it had a net commercial value to them of $2.14 million and, in addition, that they paid a deposit on the contract for sale of $365,000.
The principles in relation to when a pleading should be struck out are clear. It is equally clear that, for the purposes of a strike out application, the Court accepts the facts as alleged in the pleading. It is also accepted that the threshold is very high and a court ought be satisfied, before striking out a pleading, that there is no real defence on the pleadings.
Rule 23.02 of the Supreme Court (General Civil Procedure) Rules 2005 provides that:
Where an indorsement of claim on a writ or originating motion or a pleading or any part of an indorsement of claim or pleading—
(a) does not disclose a cause of action or defence;
(b) is scandalous, frivolous or vexatious;
(c)may prejudice, embarrass or delay the fair trial of the proceeding; or
(d) is otherwise an abuse of the process of the Court—
the Court may order that the whole or part of the indorsement or pleading be struck out or amended.
Courts have struck out pleadings on the basis that they are confusing, vague, and lack any factual or legal basis such that it is not possible to understand the elements of the cause of action and not possible for the other party to respond to it.[4]
[4]See eg, Environinvest Ltd v Pescott; Environinvest Ltd v Blackburne Pty Ltd [2011] VSC 325 [25].
Further, in relation to the court’s power to strike out, Byrne J, in Opat Decorating Service (Vic) Pty Ltd v Jennings Group Ltd, held that:
The power is, of course, subject to my overriding discretion to refuse to strike out an offending part, a discretion which has as its starting point the requirement that pleadings and particulars be sufficient to enable the defendants to know what it is they have to meet and the trial judge to conduct a trial which is fair to all parties. Insofar as it is contended that a particular paragraph or paragraphs does not disclose a cause of action I am not determining a demurrer. A plaintiff will be stopped from putting a claim forward only where, assuming the facts pleaded have been established, the claim is so manifestly hopeless that a trial would be a futility. In case of doubt I should refuse to exercise the power.[5]
[5]Opat Decorating Service (Vic) Pty Ltd v Jennings Group Ltd (unreported, Supreme Court of Victoria, 16 September 1994) [5]-[6].
Courts have held that this power should be exercised carefully[6] and that it is not appropriate to exercise it where a debatable question of law is involved. For example, in Healey v Bank of New South Wales[7] it was held that it was not appropriate to strike out a defence where ‘the defence raised is a defence upon which a great deal of argument may be addressed by both sides’.[8]
[6]EA Negri Pty Ltd v Technip Oceania Pty Ltd (2010) 27 VR 31.
[7](1898) 24 VLR 405.
[8]Ibid 407.
By way of observation only, it is clear on the face of the three documents on which the defendants rely, that at least the Initial Partners themselves considered that recognition would be given for the Initial Partners’ Contribution and Expected Profit. In particular, the minute of the meeting of the board of directors of Brickmakers Pty Ltd dated 14 March 2008 records a specific resolution regarding the allotment of shares to the Initial Partners of 600,000 units for ‘the total price of $65,000’. This is a matter which I have noted, but it is not determinative. I address it only because it was argued before me. The fact that the Initial Partners may have had a view about the manner in which the Initial Partners’ Contribution would be recognised has not weighed upon me, nor is the fact that if that contribution was not taken into account, the deal would not make commercial sense from their point of view. The fact that a contract is poorly documented or may be commercially detrimental to a party does not, of itself, invoke the assistance of the court. Remedies for such eventualities may lie elsewhere.
Notwithstanding this, in my opinion, and in the exercise of my discretion and guided by the authorities, the amendments sought ought be allowed. I say this for the following reasons:
(1)The Unitholders’ Agreement refers to units applied for by and issued to four unitholders (the Initial Partners, it seems) ‘at a subscription price of $1 per unit’. The Unit Trust Deed provides that the Initial Partners ‘have paid’ the ‘Initial Trustee’ the ‘Initial Sum’ which is defined as $2.4 million. The defendants agreed that ‘in a perfect world’, these documents may have referred to a ‘contribution’ by the Initial Partners which would more readily have permitted an interpretation of payment partly in cash and partly in kind. Notwithstanding this, I do not consider that the defendants’ argument is scandalous, frivolous, vexatious, or so lacking in a factual or legal basis so as to deprive the plaintiff from understanding the defence that confronts it.
I do not consider that the defendants’ proposed defence is so manifestly hopeless that, even if the facts as alleged were established, the defence is bound to fail at trial for being inconsistent with the words of these documents. The words and phrases used in these documents are at least capable, in my view, of sustaining a broader meaning beyond a pure cash payment.
In my opinion, the defendants ought be given the opportunity at trial to fully ventilate their arguments as to why the position they advance is not inconsistent with the plain words of the Unitholders’ Agreement and the Unit Trust Deed and, accordingly, why the construction they advance avoids the obstacles that will confront them in light of the principles enunciated in Hoyt’s v Spencer.[9]
This is consistent with the high threshold to be met in an interlocutory application of this nature.
(2)The nomination of the Trustee, Brickmakers Place Pty Ltd, as purchaser of the Property on 28 February 2008 is said by the plaintiff to put an end to the matter, resulting in the legal and beneficial interest in the Property vesting in the Trustee depriving any other party from any claim in relation to the proceeds of sale.
The construction of the terms of the Trust and the basis upon which the plaintiff subscribed for units in the Trust is the critical issue in the case and the focus of the disputed amendments.
The conversation in which it is said that an oral offer was made to the plaintiff to purchase units in the Trust is very poorly particularised. At trial, there may be no evidence which can be led in order to substantiate any such conversation, or the substance of it. However, for the purposes of this application, I must accept the facts as pleaded.
Despite its inadequacies, the defence that the plaintiff needs to address is clear enough. In short, the plaintiff will not be caught by surprise as a result of the proposed amendments. Further, I consider that all issues ought be before the court in order to ensure that all parties receive a fair hearing.
[9](1919) 27 CLR 133.
For these reasons, the plaintiff’s application is dismissed.
I will hear the parties on the question of costs.
SCHEDULE OF PARTIES
Defendants
- Brickmakers Place Pty Ltd (ACN 128 994 749) (in liquidation)
- Kyreli Pty Ltd (ACN 126 239 370)
- Rubeo Pty Ltd (ACN 126 239 389)
- Naranda Hall Pty Ltd (ACN 079 136 539)
- Shey Pty Ltd (ACN 129 291 354)
- Jengeorgia Pty Ltd (ACN 093 020 538)
- Carmelo Lastrina
- Domenic Lastrina
- Aldo Lastrina
- Elvis Jafer
- Ursula Simpson
- Paul Christofilopoulos
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