Cadoroll P/L v Allegra Corporation Ltd
[1994] FCA 714
•5 Oct 1994
9 r
JUDGMENT No. ..... , ........ nJ .,.,-.
IN THE FEDERAL COURT OF AUSTRALIA
) 1
AUSTRALIAN CAPITAL TERRITORY 1
1 No. ACT G 18 of 1992 DISTRICT REGISTRY 1 GENERAL DIVISION )
BETWEEN :
Applicants
AND: ALLEGRA CORPORATION LIMITED
First Respondent
ALLEGRA INVESTMENTS LIMITED
Second Respondent
Fifth Respondents MAUNTILL PTY LIMITED
Third Respondent
PEGASUS LEASING LIMITED
Fourth Respondent
MICHAEL GEORGE SINCLAIR. MARUTA PEARSON and MICHAEL MARK0 ZIVKOVIC trading as FARNHAM SINCLAIR & ASSOCIATES
MINUTE OF ORDER
JUDGE MAKING ORDER : Neaves J. DATE OF ORDER 5 October 1994 m E R E MADE Canberra THE COURT ORDERS THAT:
1. The applicants have liberty to file and serve on or before 4 November 1994 a second further amended statement of claim.
2. The motions on behalf of the third respondent and the first named of the fifth respondents and on behalf of the fourth respondent, in respect of each of which notice was filed on 26 April 1994, and the motion on behalf of the first and second respondents, notice of which was filed on 13 May 1994, be adjourned for mention on 21 November 1994.
3. The costs of the motions be reserved.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JN THE FEDERAL COURT OF AUSTRALIA ) \ &USTRALIAN CAPITAL TERRITORY )
) No. ACT G 18 of 1992 DISTRICT REGISTRY
) )
GENERAL DIVISION )
BETWEEN: CADOROLL PTY LIMITED. CADOSHARE PTY LIMITED, BALESCOPE PTY LIMITED. EKANI CONSULTANCY & MANAGEMENT PTY LIMITED. SOUTHERN PLUMBING SUPPLIES PTY
ZANDRA JOY BLAKE
Applicants
AND: ALLEGRA CORPORATION LIMITED
First Respondent
ALLEGRA INVESTMENTS LIMITED
Second Respondent
MAUNTILL PTY LIMITED
Third Respondent
PEGASUS LEASING LIMITED
Fourth Respondent
MICHAEL GEORGE SINCLAIR. MARUTA PEARSON and MICHAEL MARK0 ZIVKOVIC, trading as FARNHAM SINCLAIR &
ASSOCIATES
Fifth Respondents
CORAM: Neaves J.
m: 5 October 1994
REASONS FOR JUDGMENT
Before the Court are three motions each seeking orders that the further amended statement of claim filed on behalf of the applicants on 3 March 1994, or alternatively a number of paragraphs of that further amended statement of claim, be struck out and for consequential orders. The first of the three motions, notice of which was filed on 2 6 April 1994, is made by the thlrd respondent to the proceeding, Mauntill Pty Limited, and by the first named of the fifth respondents, Michael George Sinclair trading, with Maruta Pearson and Michael Marko Zivkovic, as Farnham Sinclam & Associates. The second of the three motions, notice of which was also filed on 2 6 April 1994, is made by the fourth respondent, Pegasus Leasing Limited. The third of the motions, notice of which was filed on 13 May 1994, is made by the first and second respondents, Allegra Corporation Limited and Allegra Investments Limited. The motions are made under l , 1 pars (a) and (b) of the Federal Court Rules.
Those paragraphs provide:
"16. Where a pleadlng: (a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleadlng; (b) has a tendency to cause prejudice, embarrassment or delay in the proceeding; or ( C ) .. . .
the Court may at any stage of the proceeding order that
the whole or any part of the pleading be struck out."
The specific paragraphs of the further amended statement of claim which the motions seek to have struck out are pars 10 - 18 inclusive, 20 - 31 inclusive and 36 - 38 inclusive.
The motions are made in a proceeding, numbered
ACT G 18 of 1992, pending in this Court. That proceeding was
commenced by application filed on 15 May 1992. An amended
application was filed on 2 July 1992. It names 29
applicants, being 15 corporations and 14 individuals. On 15 December 1993, a notice of discontinuance was filed on behalf of 1 corporation and 2 individuals, namely Gostrent Pty Limited, Gary Alexander Crispe and Rosalie Crispe. The respondents to the proceeding have been identified in the preceding paragraph of these reasons.
As appears from the amended application, the applicants claim the following relief:
"1. An order pursuant to section 87 of the T r a d e
P r a c t i c e s A c t 1974 (C'th) ('the Act') and/or section
72 of the F a i r T r a d i n g A c t (1987) (NSW) declaring the agreements and each of them referred to in
paragraph 16 of the statement of claim void.2. An order pursuant to section 87 of the Trade
P r a c t i c e s A c t 1974 (C'th) ('the Act') and/or section
72 of the F a i r T r a d i n g A c t (1987) (NSW) declaring the guarantees and each of them referred to in
paragraph 17 of the statement of claim void.3. Damages pursuant to section 82 of the Act and/or
section 68 of the F a i r T r a d i n g A c t (1987) (NSW). 4. A declaration that the agreements and each of them referred to in paragraph 16 of the statement of claim are illegal and unenforceable being in breach of the provlslons of sections 169, 170 and 171 of the Companies (NSW) Code or the equivalent provisions if [sic] the Companies Code in such other State or Territory as may be relevant.
A declaration that the guarantees and each of them referred to in paragraph 17 of the statement of claim are illegal and unenforceable being in breach of the provisions of sections 169, 170 and 171 of the Companies (NSW) Code or the equivalent provisions if [sic] the Companies Code in such other State or Territory as may be relevant.
Damages.
A declaration that the respondents and each of them are liable to pay equitable compensation to each of the Applicants in respect of any loss or damage suffered by them by reason of their entering into the agreements referred to in paragraph 16 of the statement of claim.
A declaration that the respondents and each of them are liable to pay equitable compensation to each of the Applicants in respect of any loss or damage suffered by them by reason of their entering into the guarantees referred to in paragraph 17 of the statement of claim.
A declaration that the agreements and each of them
referred to in paragraph 16 of the statement of claim were voidable for breach of fiduciary duty and have been avoided by the Applicants by the commencement of these proceedings.
A declaration that the guarantees and each of them referred to in paragraph 17 of the statement of claim were voidable for breach of fiduciary duty and
commencement of these proceedings. have been avoided by the Applicants by the An order declaring the guarantees and each of them entered into by the personal guarantors referred to in paragraph 32 of the statement of claim void pursuant to the provisions of the Contracts Review Act (1980) (NSW).
Interest.
costs.
14. Such further or other orders as this Honourable Court deems fit.
"
The statement of claim (as amended) to which the amended application refers was struck out by order of this Court made on 17 January 1994, liberty being reserved to the applicants then named in the proceeding, that is to say the applicants named in the amended application other than Gostrent Pty Limited, Gary Alexander Crispe and Rosalie Crispe, to file and serve a further amended statement of claim. The further amended statement of claim the subject of the present motions was filed and served pursuant to the liberty so reserved. A further amended application altering the references in the amended application to pars 16, 17 and 32 of the statement of claim (as amended) to references to the relevant paragraphs of the further amended statement of claim has not been filed. It may be assumed, however, for present purposes that the references in the amended application to pars 16, 17 and 32 of the statement of claim (as amended) are to be read as references to pars 21, 22 and 38 of the further amended statement of claim. The agreements and guarantees referred to in those paragraphs are agreements and guarantees
relating to a thoroughbred bloodstock breeding partnership
known as "The Capricorn Park No.2 Breeding Partnership".
Paragraphs 1 to 8 inclusive of the further amended statement of claim are largely formal. Paragraph 1 states that each of the applicants identified in Schedule ' A ' is a company duly incorporated and entitled to sue in and by its corporate name. Schedule 'A' identifies 14 companies. Paragraph 2 identifies, by reference to Schedule 'B', those of the applicants, being 5 corporations and 3 individuals, who are referred to elsewhere in the further amended statement of claim as "the Partners". They are Cadoroll Pty Limited, Cadoshare Pty Limited, Balescope Pty Limited, Ekani Consultancy and Management Pty Limited, Southern Plumbing Supplies Pty Limited, Anthony Wllliam Griffin, Yula Joyce Rus0ell and James Douglas Blake. Paragraph 3 identifies, by reference to Schedule C , those of the applicants, being 9 corporations and 9 individuals, who are referred to as "the Guarantors". Paragraphs 4 - 7 respectively refer to the first, second, third and fourth respondents. The first and second respondents are said to be companies which engaged in the business of management of horse breeding partnerships. The third respondent is said to be a company which engaged in the provision of management services to horse breeding partnerships. The fourth respondent is said to be a company which engaged in the provision of financial services and specifically in the making of loans and the provision of lease finance . The first respondent is said to be a foreign
corporation, a trading corporation and a corporation within the meaning of the Trade Practices Act 1974 (Cth). It may be assumed that a similar statement was lntended to be made in relation to the second respondent but the relevant paragraph, par.5(c), is deficient in that the words "and a corporation" have been omitted after the words "a trading corporation". This paragraph, therefore, requlres amendment. The third respondent is said to be a trading corporation and a corporation within the meanlng of that Act. The fourth respondent is said to be a financial corporation, a tradlng corporation and a corporation within the meaning of that Act. Paragraph 8 states that the fifth respondents at all material times carried on business as public accountants under the name "Farnham Sinclair h Associates".
Paragraph 9 of the further amended statement of claim alleges that, in and prior to 1989, 21 of the 26 applicants, being those identified in the subparagraphs of par.9, engaged Farnham Sinclair & Associates ("Farnham Sinclair") to act as consultants and confidential investment and financial advisers on their behalf, such retainer including the giving of advice in respect of the investment or potential investment referred to in pars 10 and 11 of the further amended statement of claim. It may be noted, in passing, that minor amendments are requlred to pars 9 ( c ) and
(d) - statement of claim allege:
Paragraphs 10 and 11 of the further amended
"10. At a time and date not known to the applicants but before 30 June 1989 each of the respondents agreed together that they and each of them would engage in the promotion and sale to investors of interests in a venture comprising a partnership to be known as 'The Capricorn Park No 2 Breeding Partnership' (the 'Partnership'), the purported commercial aim of whlch partnership was to engage in the breeding and sale of thoroughbred horses.
11. Further, at a time and date not known to the applicants but before 3 March 1989 each of the respondents agreed together as follows:
(a) Farnham Sinclair would:
(i) promote and market the sale of interests in the said Partnership to clients of that firm and to such other persons who might be interested in acquiring an interest in the said partnership and would solicit applications for loans and lease finance to Pegasus from such persons;
(ii) act as accountants and financial advisors for the Partnership upon its creation.
(b)
Pegasus would offer finance to such potential investors in the Partnership so as to enable them to acquire interests therein and would purchase 11 brood mares and lease those said broodmares to the Partnership.
(c)
Mauntill would provide business management services to the Partnership and manage the affairs of the Partnership when established.
(d)
Allegra Corporation or, alternatively, Allegra Investments would manage the Partnership and its business.
The further amended statement of claim then sets out
the following:
"PARTICULARS TO PARAGRAPHS 10 AND 11
(a)
The existence of an agreement to the effect referred to is to be inferred from a document on the letterhead of Allegra Corporation bearing also the name Allegra Investments entitled 'Capricorn Park No 2 Breeding Partnership - A Partnership Managed by Allegra Corporation Limited in conjunction with Mauntill Pty Limited and Balescope Pty Limited (Capricorn Park Stud)' (the 'Offer Document') and the contents thereof including the following:
(i)
the title page and its references to Allegra Corporation, Allegra Investments and Mauntill;
(ii)
page 2, first paragraph and the reference to Farnham Sinclair;
(iii)
pages 2-3 'structure' and the reference to 'Pegasus' as the partnership's 'financier';
( iv)
page 4 'management' and the references to Allegra Corporation, Farnham Sinclair and Mauntill;
(v)
the reference to M G Sinclair and the invitation to contact him on page 6;
(~1) the application form addressed to Farnham Sinclair on page 10; (vii)
the lease application form addressed to Pegasus on pages 11 and 13 of the offer document.
(b) The facts referred to in paragraph 12 below."
Paragraph 12 alleges that, commencing in about February 1989 and continuing up to and including 30 June 1989, Michael George Sinclair distributed to each of the applicants the "Offer Document" and had conversations with various of the applicants, who represented themselves and other applicants, in which he solicited investment in the Partnership and the purchase of interests thereln by "those applicants". As the paragraph names each of the 26 applicants, it may be that the reference to "those applicants" should be limited to those applicants identified as "Partners".
Paragraphs 13, 14 and 15 of the further amended
statement of claim and the particulars appended to par.14
read:
"13. In so distributing the offer document and in having the conversations referred to in the preceding paragraph Michael George Sinclair promoted the Partnership and investment therein and solicited the entry of the applicants into the agreements referred to in paragraphs 21 and 22 below, including the agreements with Pegasus.
14. In distributing the offer document and in having the conversations referred to in paragraph 12 above and in promoting the Partnership and Investment therein and soliciting the entry into the agreements referred to in paragraphs 21 and 22 below as alleged in paragraph 13 above the respondent Michael George Sinclair was acting pursuant to the agreement referred to in paragraph 11 above and doing so on behalf of Farnham Sinclair and each of [SIC] other of the respondents and acted as their agent so to promote the Partnership and investment therein and to solicit sale of interests thereln and entry into the said agreements.
PARTICULARS
(a) The applicants repeat the particulars to paragraphs 10 and 11 above. (b) The agency of Michael George Sinclair is further to be inferred from the fact that as a result of his solicitation the applicants entered into the agreements with the respondents referred to in paragraphs 21 and 22 below. 15. The knowledge and actions of Michael George Sinclair are to be attributed to each other of the respondents by reason of the following matters:
(a)
in respect of Farnham Sinclair, Michael George Sinclair was a partner thereof;
(b)
in respect of Mauntill, Michael George Sinclair was a director thereof;
(c) in respect of Allegra Corporation, Allegra
Investments, Pegasus and Mauntlll, Michael George Sinclair was agent therefor acting within the scope of hls agency and by reason thereof those respondents are vicariously liable for his actions and hls knowledge and his states of mind and actions are to be imputed to them.
both at common law and under section 84 of the T r a d e P r a c t i c e s A c t 1974 and section 70 of the F a i r
T r a d i n g A c t 1987"
In pars 16 - 45, causes of actlon under separate
heads are pleaded. Paragraphs 16 - 24 allege breaches by all
the respondents of s.52 of the Trade Practices Act and s.42 of
the Fair Trading Act 1987 (NSW); pars 25 - 27 allege breaches by all the respondents of fiduciary obligations said to be owed to each of the applicants; pars 28 - 31 allege that the agreements referred to in par.21 and the guarantees referred to in par.22 are illegal and unenforceable, being in breach of ss.169, 170 and 171 of the Companies (New South Wales) Code, the Companies Act 1981 (wrongly referred to as being legislation of the Australian Capital Territory rather than the Commonwealth) and the Companies (South Australia) Code; pars 32 - 35 allege breaches of the contracts between Farnham Sinclair and the applicants identified in par.9; pars 36 - 37 allege that the respondents engaged in conduct in trade or commerce which was unconscionable within the meaning of s.52A
of the Trade Practices Act and s.43 of the Fair Trading Act;
pars 38 - 39 allege that the agreements and guarantees entered into by each of 11 of the 12 individual applicants named in the proceeding are unjust within the meaning of s.7(1) of the Contracts Review Act 1980 (NSW); and pars 40 - 45 allege that on and after 17 May 1989 Farnham Sinclair engaged in conduct
the Fair Trading Act. in contravention of s.52 of the Trade Practices Act or s.42 of The first of the paragraphs sought to be struck out are pars 10 and 11, the text of which is set out above. It is submitted on behalf of those respondents who are the applicants in the motions before the Court, those respondents being hereafter referred to collectively as "the moving respondents", that no material facts to support the
allegations of an agreement and a further agreement between the respondents are pleaded; that the allegations are vague and obscure; that the mode of formulation of the agreements is not pleaded; and that the relevance of the agreements to the causes of action alleged to arise as a result of the agreements is not clearly set out and remains a matter of speculation. It is further submitted that par.11 is ambiguous in that it is not clear whether it alleges conduct pursuant to the agreement alleged in par.10 or alleges an agreement further to, and independent of, that alleged in par.10. The submission is also made that no material facts to support the allegations contained in subpars (a), (b), (c) and (d) of par.11 are pleaded.
It became clear during the course of argument that pars 10 and 11 are intended to refer to the same agreement, counsel for the applicants conceding that the paragraphs are, in that respect, ambiguous and require amendment to clarify what is alleged. Subject to that amendment being made, the
other objections taken to the paragraphs are, in my opinion,
not sustainable.
Paragraph 12 is, in my opinion, unobjectionable. No sufficient ground has been established to warrant that paragraph being struck out. Similarly, no sufficient ground has been established to warrant the striking out of pars 13 and 14. The case which the applicants seek to make is, in my opinion, clearly enough stated and I am not satisfied that
those paragraphs are, in point of pleading, embarrassing to the respondents. Whether the facts relied on are sufficient to sustain the proposition for which the applicants contend is a matter to be determined, not at this interlocutory stage, but in the light of the evidence adduced at the trial.
The text of par. l5 is set out above. I agree with the submission on behalf of the moving respondents that subpar.(b) of that paragraph provides no basis for the conclusion that the knowledge and actions of Michael George Sinclair are to be attributed to Mauntill Pty Limited. The paragraph requires amendment in this respect. Except to that extent, no sufficient ground to strike out the paragraph has, in my opinion, been shown.
I turn now to pars 16 - 24 of the further amended statement of claim which plead causes of action based on contraventions of s.52 of the Trade Practices Act and s.42 of the Fair Trading Act.
Paragraph 16 alleges that Michael George Sinclair, in distributing the "Offer Document" to the applicants, made certain representations to each of them. The paragraph further alleges that -
"by reason of the facts stated in paragraphs 4, 5, 6, 10, 11, 13, 14 and 15 each other of the respondents is also taken to have made those representations, in trade and commerce."
The representations are identlfled In 11 lettered
subparagraphs as follows:
"(a) that the broodmares proposed to be purchased by Pegasus and leased to the Partnership had a then current market value of $390,000;
(b) that an arrangement would be made with Pegasus to limit each individual's liablllty within the Partnership; (c) that the income projections set forth in the Offer Document were conservatively based; (d) that the Partnership would be managed by Allegra Corporation; (e) that Farnham Sinclair were currently managing, through Mauntill 3 large breeding partnerships which had been showing excellent returns; (f) that the broodmares had been chosen to maximise the commercial success of the Partnership; (g) that the broodmares represented excellent value at the purchase price set; (h) that the mix of broodmares gave both a realistic basis for forecasting conservative income levels and the potential considerably to exceed those forecasts; (i) that the Partnership was a tax effective business opportunity devised to take advantage of the rapidly
growing thoroughbred industry; (j) that the Partnership had a strong group of good quality broodmares individually selected; (k) that the Partnership would be a profitable enterprise."
Particulars appended to the paragraph state:
"The representations referred to were made by and are to
be inferred from the Offer Document."
Paragraph 17 alleges that in the course of the conversations referred to in par.12, Michael George Sinclair made certain representations to certain of the applicants. The paragraph identifies the' representations which are alleged to have been made to different groups of applicants. The representations vary from group to group. The paragraph also alleges that -
"by reason of the facts stated in paragraphs 4, 5, 6, 7, 10, 11, 13, 14 and 15 each other of the respondents is also taken to have made those representations, in trade and commerce."
It is sufficient for present purposes to refer to the representations alleged to have been made to the group of applicants comprising Alfred Nathan Lester, John William Firth, Lester Firth Associates Pty Limlted, Cadoroll Pty Limited, Cadoshare Pty Limited and Hamerleen Pty Limited. Those representations are -
" (i) that each individual partner's financial exposure in terms of the lease to be entered into in accordance with the proposed arrangements disclosed in the offer document would be llmited; and (11) that the breeding of thoroughbred bloodstock was a secure investment proposal with long term gains in the order of 20% to 30% on the monies invested.
(iii) that the other thoroughbred bloodstock syndicates were showing excellent returns and the Partnership was a better investment than those earlier syndicates."
Paragraph 18 alleges that each o f the representations set forth in pars 16 and 17 was untrue by reason of the matters identified in 16 lettered subparagraphs. It is sufficient for present purposes to set out what is said in some only of those subparagraphs. Thus, pars (a), (b), (c), (d), (e), (g), (i), (1) and (m) are in the following terms :
"(a) The true value of the broodmares was very much less than $390,000.
(b)
Pegasus by letter dated 11 November 1991 to the Applicant Cadoroll on behalf of the Applicants, asserts that the liability of each of the Applicants within the partnership was and is unlimited.
(c)
The income projections were not conservatively based, nor could Allegra Corporation reasonably have believed them to be so in circumstances where the broodmares were purchased for a price very much greater than their true value.
(d) Allegra Corporation did not manage the partnership.
(e)
At the time of the representations and after that time, the other large breeding partnerships managed by Farnham Sinclair through Mauntill were not showing excellent returns and were experiencing financial difficulties.
(g) The broodmares were not, in light of the price paid and their true value, a strong group of good quality broodmares. (i)The breeding of the broodmares was not in the circumstances a secure investment proposal with any prospect of long term gain where the broodmares had been purchased for a price very much greater than their true value.
(1) The estimates in the offer document were not conservative nor could Michael George Sinclair reasonably have believed them to be so in circumstances where the broodmares were purchased for a price very much greater than their true value.
(m)
At the time of the representations and after that time, the previous bloodstock syndicates were not returning profits of between 25% and 35% nor could Michael George Sinclair reasonably have believed that Capricorn Park No 2 Breeding Partnership would do the same.
Paragraph 19 reads:
"19. Each of the representations set forth in paragraphs 16 and 17 above were misleading and deceptive in that they were untrue for the reasons stated in paragraph 18 above and, in respect of the representations set forth in paragraphs 16(b), (h), (i), (k), 17(a)(i) and (ii), (b)(i), (ii), (iii), (c)(i)r (d)(i), (ii), (iii), (iv) and (v), (e)(i) and (ii) and (f)(i), those representations inherently related to future matters within the meaning of section 51A of the Trade Practices Act 1974 and section 41 of the Fair Trading Act 1987 and the respondents had no reasonable grounds for making the said representations which are thereby taken to be misleading and deceptive within the meaning of section 52 of the Trade Practices Act 1974 and section 42 of the Fair Trading Act 1987."
and 17, Michael George Sinclair aided, abetted, counselled or (par.20) that, in making the representations stated in pars 16 The further amended statement of claim then alleges procured the contraventions of 6.52 of the Trade Practices Act and s.42 of the Fair Trading Act, induced the said contraventions and was directly or indirectly knowingly concerned in or party to such contraventions. Reference is then made to s.75B of the Trade Practices Act and 6.61 of the Fair Trading Act.
Paragraphs 21 and 22 allege that, induced by the representations as alleged and in reliance thereon, each of the Partners applied for units in the Partnership and entered into agreements described as the Partnership and Management Agreement, a lease agreement and a loan agreement and entered into a mortgage of shares and each of the Guarantors executed a guarantee in respect of certain of the obligations of certain of the Partners. Paragraph 23 alleges that, by reason of the conduct referred to in pars 16, 17, 18 and 19, the applicants and each of them have suffered loss and damage. Particulars are appended to that paragraph in the following terns :
"(i) If the partners had been made aware of the matters referred to in paragraph 18 above, the Partners would not have entered into the agreements referred to in paragraph 21 above.
(ii) If the Guarantors had been made aware of the matters referred to in the particulars to paragraph 18 above, the Guarantors would not have entered into the guarantees referred to in paragraph 22 above."
Paragraph 24 then seeks relief in terms of s.87 of the Trade
Practices Act and/or 6.72 of the Fair Trading Act.
In my opinion, there are substantial objections to pars 16 - 24 of the further amended statement of claim. Paragraph 16 sets out the representations which are said to have had their source in the "Offer Document" and to have been conveyed to the applicants by the distribution of that document to them by Michael George Sinclair. The paragraph primarily asserts that Michael George Sinclair made the representations but par.20 is directed to showing that his liability is dependent upon him havlng ben "involved" in contraventions by others of s.52 of the Trade Practices Act and 6.42 of the Fair Trading Act. The two allegations cannot stand together at least so far as the Trade Practices Act is concerned. No facts are pleaded to establish an operation of the Trade Practices Act which would result in Michael George Sinclair being liable, otherwise than by reason of s.75B, for any contravention of s.52 alleged in the pleading. It seems that what should be asserted in par.16 is that the representations were made by those of the respondents that are corporations, that is to say, the respondents other than the fifth respondents and that the representations were made through their alleged agent, Michael George Sinclair. In this regard, it is to be noted that there is no allegation in the further amended statement of claim as to who was responsible for the preparation or publication of the "Offer
Document " . Similarly, it would seem that par.17 should allege that the respondents that are corporations made the representations there alleged and that those representations were made through their alleged agent, Michael George Sinclair.
Paragraph 18 gives rise to further difficulties and
there is little in the paragraph that can escape criticism. I
2 0
will mention only some of the difficulties to which the
paragraph gives rise.
Subparagraph 18(a), purports to state the reason for concluding that the representation alleged in subpar.l6(a) was untrue. The representation alleged is that the broodmares "proposed to be purchased" by Pegasus Leasing Limited and leased to the Partnership "had a then current market value of
$390,000". It is not clear to what point of time the word
"then" refers but it must be assumed for present purposes that the applicants will succeed in establishing that a representation was made in the terms pleaded. It may be noted that the further amended statement of claim does not identify "the broodmares proposed to be purchased". A document headed "Schedule 'D"' containing 11 names, which may be assumed to be the names of 11 broodmares, is annexed to the further amended statement of claim but that document is not identified or otherwise referred to in the body of the pleading. It is not apparent that the broodmares referred to in subpar.lE(a) are
whether they are the broodmares which were leased to the
the same broodmares as are referred to in subpar.l6(a) or
Partnership. Later subparagraphs of par.18, by referring to the broodmares having been purchased "for a price very much greater than their true value", suggest that subpar.lE(a) refers to the broodmares purchased and leased to the Partnership. It may be that the broodmares that were proposed to be purchased were the broodmares purchased and leased to the Partnership but that is pure speculation. There is no
2 1
specific allegation in the pleading that 11 broodmares were purchased and leased to the Partnership or, if that be the position, the price at which they were purchased or the significance for the Partnership of the amount of the purchase price. I digress to say that, if the document headed "Schedule 'D'" purports to name the 11 broodmares leased to the Partnership, it does not include the name "Soranita" referred to in subpar.26(a) of the further amended statement of claim.
Further, the statement in subpar.l6(a) that the
broodmares, however identified, had a current market value of
$390,000 is a statement of opinion. TO assert, as
subpar.l8(a) does, that the true value of the broodmares was "very much less than $390,000" is merely to state another opinion. The statement in subpar.l8(a) without more, even if established, does not demonstrate that the statement in subpar.l6(a) was untrue.
Again, the statements in subpars 18(b) and 18(d) do
not demonstrate the falsity of the representations alleged in
subpars 16(b) and 16(d) respectively.
Subparagraph 18(c) does not allege any facts to support the conclusion stated that the income projections "were not conservatively based". It is also curious that, although subpar.l6(d) alleges that all the respondents represented that the income projections set forth in the
2 2
"Offer Document" were conservat~vely based, subpar.l8(c) singles out Allegra Corporation Limited as the only respondent of which it is alleged that it could not reasonably have believed that the Income projections were so based. Similarly, subpars 18(1) and 18(m) single out Michael George Sinclair as the only respondent of whom it is said that he could not reasonably have had the beliefs stated in those subparagraphs.
Subparagraph 18(e) does not allege any facts to support the conclusions stated that "the other large breeding partnerships", not otherwise identified, were "not showing excellent returns and were experiencing financial difficulties".
Subparagraphs 18(e) and 18(m) allege that certain states of fact existed not only at the time of the representations but also "after that time". The only relevant time in relation to the subject matter of that part of the
pleading is the time at which the representations are alleged to have been made. Subparagraph 18(g), even if established, would not demonstrate the falsity of the representation alleged in subpar.l6(j).
Without descending into further detail, the general
comment can be made by reference to other subparagraphs of
2 3
par.18 that there remains a lack of coincidence between the representations alleged and the matters relied upon to demonstrate their falsity.
Paragraph 23 fails to give any relevant particulars of the loss and damage alleged to have been suffered by each of the applicants by reason of the conduct referred to in pars 16, 17, 18 and 19 of the further amended statement of claim. Indeed no facts are pleaded as to what occurred under or pursuant to the agreements referred to in par.21 from which even the nature of the loss and damage may be discerned.
A further criticism of pars 16 - 24 of the pleading,
a criticism which I find substantiated, is that no facts are
alleged which would render relevant the provisions of the Fair
Trading Act 1987 (NSW).
It follows from what I have said that, unless
substantial amendment is made to pars 16 - 24, those
paragraphs should be struck out. In redrafting the paragraphs attention should be given not only to the matters to which I have specifically referred but to the further criticisms of those paragraphs, particularly par.18, discussed during the course of argument.
I turn now to pars 25 - 27 of the further amended statement of claim which plead cause of action based upon breaches by all the respondents of fiduciary obligations said to be owed to each of the applicants.
Paragraph 25 alleges that, by reason of the facts stated in pars 10, 11, 12, 13 and 14, each of the respondents was "a promoter" of the Partnership and by reason thereof each of the respondents owed to each of the applicants fiduciary obligations including -
"(a) a duty to act in the utmost good faith towards the
applicants;
(b) a duty not to place themselves in the position where their own interest might conflict with those of the applicants in relation to the devising, establishment, financing, administration and promotion of the Partnership; and (c) a duty to make full disclosure of all relevant and material facts pertaining to each applicant's decision to invest in the Partnership or guarantee the loans to each of the applicants." Paragraph 26 alleges -
"26. In breach of the fiduciary obligations referred to
in paragraph 25 above each of the respondents
engaged in the following conduct:
(a)
Allegra Corporation (or interests associated with it) in June 1989 sold to Pegasus for the purposes of leasing to the Partnership and Pegasus so leased to the Partnership the mares 'Fine Kudos', 'Sweet Hostage' and 'Soranita' and received the sale price therefor;
(b)
failed to disclose to the applicants the fact of the said sale and the fact that Allegra Corporation (or interests associated with it) owned the said mares and proposed to sell them to Pegasus for the purposes of a lease to the Partnership;
(c)
Pegasus received from the Partnership lease payments in respect of the broodmares calculated on the basis of the overstated value thereof set forth in the Offer Document;
(d)
failed to disclose to the applicants the facts set forth in sub-paragraph (c) above; and
(e)
made the representations pleaded in paragraphs 16 and 17 above and failed to disclose their falsity as alleged in paragraph 18 above to the applicants."
Paragraph 27 alleges that, by reason of the breaches of fiduciary obligation, the applicants suffered loss and damage. The paragraph claims that the respondents are liable in equity to compensate the applicants for such loss and damage and to account to them for all profits made by them as a result of the breaches and that each of the agreements referred to in pars 21 and 22 are liable to be set aside
For the moving respondents it is submitted that
insufficient facts are pleaded to establish that those
respondents stood in a fiduciary relationship to the
to arise from such relationship. applicants or to establish any breach of the obligations said By reason of the deficiencies in pars 10 and 11 to which reference has already been made, the first of those submissions must be accepted. If, however, those paragraphs are amended to remedy those deficiencies , the statement in par.25 that the facts relied on to sustain the cause of action for breach of fiduciary obligations are those stated in pars 10, 11, 12 13 and 14 would, in my opinion, sufficiently
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identify the facts on which the applicants rely. It is another question, of course, whether those facts, if established, are sufficient to give rise to the fiduciary obligations pleaded in par.25. It is, however, inappropriate for that issue to be determined on the hearing of the present motions.
I accept the submission on behalf of the moving respondents that insufficient facts are pleaded in par.26 to establish that there was any breach of the fiduciary obligations pleaded.
Unless pars 25 and 26 are amended to remedy the deficiencies they exhibit, they should, in my opinion, be struck out.
The next group of paragraphs which the moving
respondents seek to have struck out are pars 28 - 31. Those
paragraphs allege that the agreements and guarantees referred to in pars 21 and 22 respectively are illegal and unenforceable, being in breach of ss. 169, 170 and 171 of the Companies (New South Wales) Code, the Companies Act 1981 and the Companies (South Australia) Code.
Paragraphs 28 and 29 read:
"28. The respective interests of each of the partners in the partnership were and are rights to participate, or interests, in the profits and assets of a financial or business undertaking or, alternatively,
in a common enterprise in relation to which the holder of the right or interest (that is, the Partners) was led to expect profits from the efforts of the promoters thereof or a third party and by reason thereof were 'participation interests' and 'prescribed interests' within the meaning of section
5(1) of the Companies (New South Wales) Code, the
Companies Act, 1981 (ACT) and the Companies (South
Australia) Code ('the Code').29. The promotion of the partnership by the Respondents by the use of the offer document and the subsequent acquisition by the partners of their respective interests in the partnership as set out above constituted or involved an offer to the public of such prescribed interests for subscription or purchase or invitation to the public to subscribe for or purchase such interests within the meaning of sections 169, 170 and 171 of the Code."
Paragraph 30 alleges that "[iln the premises", the agreements and guarantees referred to in pars 21 and 22 respectively resulted from the making of the offer referred to in par.29 and were such an integral part of the setting up of the Partnership, which setting up is said to have included the making of the offer referred to in par.29, that they cannot be severed therefrom. Paragraph 31 alleges that, by reason of the matters alleged in pars 28 - 30 inclusive, the agreements
of the provisions referred to above. and guarantees are illegal and unenforceable being in breach In my opinion, pars 28 and 29 do no more than reproduce those parts of the statutory provisions on which the applicants seek to rely. The material facts necessary to establish the applicability of the statutory provisions to the transactions the subject of the proceeding are not stated. There are, for example, no facts stated to establish, in terms
2 8
of s.169, that a person, other than a company or an agent of a company authorised for that purpose under the common or official seal of the company, issued to the public, or offered to the public for subscription or purchase, or invited the public to subscribe for or purchase, an lnterest that answers the description of a "prescribed interest". Similarly, there are no facts pleaded to establish that the provisions of s.170 or 8.171 had any operation in relation to the Partnership.
Unless substantial amendment is made to pars 28 -
31, those paragraphs should be struck out.
No specific objection is raised in relation to pars 32 - 35 which plead breaches of the contracts between Farnham Sinclair and the applicants identified in par.9. I make no comment on those paragraphs except to note that a minor amendment is required to par.32 which incorrectly refers to "subparagraph 9".
Paragraphs 36 - 37 allege unconscionable conduct on the part of the respondents. Again, the material facts on which the applicants rely are not pleaded. In particular, no facts are pleaded sufficient to establish that the Fair Trading Act has any application to the transactions in question. It is by no means clear to what matters the first of the particulars given refer. Contrary to what is there stated, there are no particulars to either par.18 or par.26 of the pleading. It is quite inappropriate, the material facta
2 9
not having been pleaded, to state, as particular (iii) does, that "further particulars will be provided as and when they become available. The respondents are entitled to know the case they have to meet before being required to plead.
Unless the material facts are stated by amendment, pars 36 - 37 should be struck out.
Paragraphs 38 - 39 allege that the agreements and guarantees entered into by 11 of the 12 individual applicants are unjust within the meaning of s.7(1) of the Contracts Review Act 1980 (NSW). No facts are pleaded to establish the applicability of that statute. In any event s.7(1) of that statute provides only for orders under its provisions to be made by the Supreme Court of New South Wales.
Unless facts are pleaded which, if proved, establish the applicability of the statute, pars 38 - 39 should be struck out.
Although pars 40 - 45 were not referred to in the notices of motion filed on behalf of the moving respondents, a submission was made on the hearing of the motions that those paragraphs were embarrassing "insofar as they approbate and reprobate on the issue of the partnership". I am unable to agree with that submission.
In the result, I think the proper course is to adjourn the motions to allow the applicants a perlod within which to file and serve, if so advised, a second further amended statement of claim. If the applicants propose to file and serve such a document, the same is to be filed and served on or before 4 November 1 9 9 4 . The motions will be listed for
mention on 2 1 November 1 9 9 4 . The costs of the motions are reserved.
I certify that this and the preceding
2 9 pages are a true copy of theReasons for Judgment herein of the
Honourable Justice heaves. h r, Dated: 5 October 1 9 9 4
Counsel for the applicants : Mr B.R. McClintock Solicitors for the applicants : Minter Ellison Morris
Fletcher
Counsel for the first and : M r R.J. Arthur
second respondents
Solicitors for the first and : Phillips Fox
second respondents
Counsel for the third respondent : Mr R.J. Weber
Solicitore for the third respondent: Blake Dawson Waldron
Counsel for the fourth respondent : Mr R.C. Refshauge
Solicitors for the fourth : Macphillamy Cummins &
respondent : Gibson
Counsel for the first named of the : Mr R.J. Weber
fifth respondents
Solicitors for the first named of : Blake Dawson Waldron
the fifth respondents
Date of hearing : 24 May 1994
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