Catto v Hampton Aust Ltd (in Liq)

CATTO & ORS v HAMPTON AUSTRALIA LTD (IN LIQ) & ANOR
[2000] SASC 104

Magistrates Appeal: Civil

WILLIAMS J Hampton Australia Ltd (In Liquidation) (“Hampton”) and Kalgoorlie Lakeview Pty Ltd (“KLV”), the first and second defendants in the action, have each appealed against decisions of a Master made on 31 January 2000 in which he dismissed an application by each of them.
The Master’s decision and the appellants’ grounds of complaint
The application by Hampton was made on 14 September 1999 and sought orders:
“1..... That paragraphs 10 to 16 (inclusive), 49, 50, 58.2 and 58.3 of the More Explicit Statement of Claim dated 7 September 1999 and paragraphs 1, 2, 4 and 5 of the prayers for relief as against the First Defendant set out therein be struck out.
2...... Further or in the alternative, that a fuller and more explicit pleading be filed in response to the First Defendant’s Rule 46.20 Notice dated 23 August 1999.”
The application by KLV was made on 16 September 1999 and sought orders as follows:
“1..... That paragraphs 9-28, 33-34, 46-47 and 49-50 of the More Explicit Further Amended Statement of Claim (“the Amended Claim”) together with Prayers 1 (last appearing), 2 (first and second appearing) and 5 of the Amended Claim be struck out.
2...... Further, or in the alternative, that further and better particulars be provided of the paragraphs 9, 13, 14, 45, 47-50 and 58 of the Amended Claim referred to in the accompanying affidavit.”
The Master gave one set of reasons for his decisions in which he discussed the two applications and dealt in some detail with the arguments put in support of each application. He also explained why he dismissed each application.
The first appellant has eight grounds contained in the Notice of Appeal. I will not repeat them except to say that Hampton complains about the Master’s approach to the question of whether the statement of claim disclosed a reasonable cause of action and whether the prayers for relief were tenable.
The second appellant has seven grounds in the Notice of Appeal. KLV makes similar complaints to Hampton but particularly complains that the Master erred in finding that the plaintiffs (the respondents in the present action) had not failed to plead material facts capable of satisfying the test for ascertaining whether a term should be included in a contract.
The plaintiffs’ case as pleaded
On the case put forward by the plaintiffs, in terms of the statement of claim, the plaintiffs collectively held approximately 0.3% of the issued shares in Hampton. The remaining 99.7% of the issued shares were held by KLV. On 5 December 1997, at an extraordinary General Meeting of Hampton, KLV voted in favour of resolutions that Hampton be wound up voluntarily. KLV also voted that, in accordance with Article 124 of Hampton’s Articles of Association, the assets be divided in specie amongst company members but on the basis that members, other than KLV, receive only cash assets and that KLV receive a mixture of assets comprising shares in other companies, all receivables and some cash.
Authority to wind up on the resolution of company members is provided by s 491 of the Corporations Law.
Article 124 of Hampton’s Articles of Association deals with a distribution in kind on the authority of a special resolution of members and enables the liquidation to attribute values to property which is to be the subject of division.
The plaintiffs, who opposed these resolutions, complain that on a winding up in the manner proposed they may be denied fair value for their shareholding as compared with its worth on valuation of a “going concern”. Value is said to attach to the position of Hampton within the Normandy group of companies.
The plaintiffs, as minority shareholders, claim to have been oppressed by what has occurred in terms of s 260 of the Corporations Law. They also claim that the resolution was passed otherwise than for a proper purpose and that the impugned conduct constitutes equitable fraud. They complain as to the involvement of the majority shareholder, KLV, and Hampton itself in the process. The plaintiffs frame their case in various ways. In asserting a right to be treated fairly they base a claim on alleged contractual rights attaching to their shares with certain terms being implied as to the exercise of the power to wind up Hampton. The plaintiffs also rely upon the proprietary rights attaching to their shares.
At the heart of the plaintiffs’ argument, which is disputed on this appeal, is the proposition that the power of shareholders contained in s 491 of the Corporations Law must not be exercised for an improper purpose. The appellants assert that the majority shareholders have a right to vote under s 491. The appellants contend that the purpose of utilising the procedure of s 491 is immaterial.
The approach to be taken to rule 46.18 of the Supreme Court Rules
Although the appellants attack certain paragraphs in the statement of claim, their primary submission is that the pleadings should be struck out as disclosing no reasonable cause of action. They contend that s 491 confers a right the exercise of which is unaffected by purpose. I am asked to uphold that contention on an application to strike out the statement of claim under r 46.18 of the Supreme Court Rules 1987 (SA) (“SCR”).
The principles on which the Court acts in such a case is set out in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (Reg) (Esanda’s case) (1994) 61 SASR 424 at 438 per Olsson J:
“Rule 46.04 prescribes the fundamental requirements of a statement of claim. Inter alia, it requires such a document to contain a statement, in summary form, of the material facts on which the relevant party relies, but not evidence by which the facts are to be proved. It also stipulates that proper particulars of the claim be given, including specific particulars of the type adverted to in r 46.04(f).
It is elsewhere provided in r 46.18 that the whole or any part of a pleading which discloses no reasonable cause of action may be struck out at any stage of the proceedings.
As appears from the judgment of Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129 the test to be applied on such an application has been stated in a variety of forms: see also Egan v Commonwealth Minister for Transport (1976) 14 SASR 445. It is sufficient, for present purposes, merely to say that a pleading in a statement of claim will be struck out if, on the face of it, the alleged cause of action - as pleaded - is so obviously untenable that it cannot possibly succeed. The power to strike out is to be exercised with caution and the mere fact that the cause of action as alleged is weak, or not likely to succeed, is not sufficient to warrant a striking out order. The pleading must be so deficient that it is possible, unequivocally, to say that it does not, on any view, raise a case which is sustainable in the form in which it has been pleaded, even if the factual averments are made good.”
Although the general principle is clear, sometimes a Court will use such an application as the vehicle for finally determining a question of law, as if, in accordance with earlier practice, a demurrer were being argued. It is a matter for the Court as to whether it will treat the application in this way. In Esanda’s case King CJ said at 433:
“I acknowledge the validity of the submission of Mr Wicks that the r 46.18 procedure is a summary procedure and should be reserved for a plain case. It is not apt for the resolution of difficult questions of law. Perhaps the demurrer type procedure envisaged by r 75.02(c) would have been more appropriate. I think, however, that having reached the conclusion which I have reached after full argument and consideration, it would be artificial to dismiss the appeal on the ground that the r 75.02 procedure might have been preferable. A conclusion does not necessarily cease to be plain because it has taken argument and consideration to arrive at it. I have reached a clear conclusion that the statement of claim does not disclose a cause of action in negligence and I think that the Court should give effect to that view by allowing the appeal.”
Commenting on this in the High Court in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1995-97) 188 CLR 241 Gummow J said at 293-4:
“The strike-out application was made under the summary procedure provided in r 46.18 of the Supreme Court Rules 1987 (SA). It was accepted that this procedure should be reserved for a plain case in accordance with the principles identified in General Steel Industries Inc v Commissioner for Railways (NSW). Rule 75.02(c) provides for what King CJ identified as a “demurrer type procedure”. This was not utilised but may have been more appropriate.
The Full Court reached what the Chief Justice described as the clear conclusion that the statement of claim did not disclose a cause of action in negligence. Accordingly, the appeal was allowed and certain paragraphs of the statement of claim and other consequential passages were struck out. Those elements of the statement of claim were the sole basis for the claim in negligence. However, on the grant of special leave by this Court, no condition was imposed which would shut out Esanda subsequently from seeking further to amend, for example, in the light of what might be disclosed on discovery. Esanda has not forgone any rights it may have in that respect.
The matter thus comes to this Court neither upon a demurrer nor after a trial in which the facts have been found. That is an important consideration for the framing of these reasons for judgment.”

And McHugh J said at 271:

“The power to strike out pleadings under r 46.18 cannot be exercised unless “the case of the plaintiff is so clearly untenable that it cannot possibly succeed.” In General Steel, Barwick CJ warned that the power to strike out a pleading must be sparingly exercised; the mere fact that the plaintiff’s prospects of success are slim is not enough to strike out a pleading.”

In my view this appeal should now be dealt with in accordance with the principle as stated by Olsson J in Esanda’s case.
The appellants’ contentions suggested that I should resolve a question of law. I am not persuaded to follow that course. On the argument presented to him the Master decided that there was, in the relevant respects, an arguable case. I will treat myself as deciding whether or not the test as formulated by Olsson J has been satisfied and whether error has been demonstrated in the Master’s reasoning.
The appellants point out that General Steel Industries Inc v Commissioner of Railways (NSW) (1964) 112 CLR 125 itself involved an application to set aside a writ and statement of claim or stay further proceedings on the grounds that the plaintiff neither had nor disclosed a reasonable cause of action under 0 26 r 18 of the High Court Rules. That provides:
“(1).. The Court or a Justice may order a pleading to be struck out on the ground that it does not disclose a reasonable cause of action or answer.
(2)... In that case, or in case of the action or defence being shown by the pleadings to be frivolous or vexatious, the Court or a Justice may order the action to be stayed or dismissed, or judgment to be entered accordingly, as is just.”
This rule is to be compared with the former SCR 25.4 on which Egan v Commonwealth Minister for Transport (see (1976) 14 SASR 445) was decided under the heading “proceedings in lieu of demurrer”. The former order 25 included r 25.2 which provided for points of law to be raised by pleadings and also included r 25.4 which enabled, inter alia, a statement of claim to be struck out on the ground that it discloses no reasonable cause of action. These rules are to be compared with the current SCR 46.10 which enables a point of law to be raised on the pleading and the current SCR 46.18. The manner in which the former rules were applied appears from the cases cited below.
In Hubbuck & Sons Ltd v Wilkinson, Heywood and Clark Ltd (1899) 1 QB 86 Lindley MR, speaking for the Court of Appeal said at 90-91:
“Order xxv. abolished demurrers and substituted a more summary process for getting rid of pleadings which shew no reasonable cause of action or defence. Two courses are open to a defendant who wishes to raise the question whether, assuming a statement of claim to be proved, it entitles the plaintiff to relief. One method is to raise the question of law as directed by Order xxv., r.2; the other is to apply to strike out the statement of claim under Order xxv., r.4. The first method is appropriate to cases requiring argument and careful consideration. The second and more summary procedure is only appropriate to cases which are plain and obvious, so that any master or judge can say at once that the statement of claim as it stands is insufficient, even if proved, to entitle the plaintiff to what he asks. The use of the expression “reasonable cause of action” in rule 4 shews that the summary procedure there introduced is only intended to be had recourse to in plain and obvious cases. The authorities collected in the Annual Practice shew that the Courts have always so construed rule 4, although sometimes, no doubt, a statement of claim may be so long and the facts so complicated that considerable time and attention are required to ascertain their true result, as in Republic of Peru v. Peruvian Guano Co.”
(emphasis added).
In Worthington Co. (Ltd) v Belton and Ors (1902) TLR 438 Romer LJ cited Lord Lindley’s statement, as quoted above and then added at 439:
“But in dealing with these applications the statement of claim must not be construed so strictly as under the old procedure by demurrer. That was pointed out by Mr. Justice Chitty in “Republic of Peru v. Peruvian Guano Company” (36 Ch.D., 489, at p.496), where he said:-
......... “Having regard to the terms of Order 25, rule 4, and to the decisions on it, I think that this rule is more favourable to the pleading objected to than the old procedure by demurrer. Under the new rule the pleading will not be struck out unless it is demurrable and something worse than demurrable. If, notwithstanding defects in the pleading, which would have been fatal on a demurrer, the Court sees that a substantial case is presented, the Court should, I think, decline to strike out that pleading.”
It was the appellants’ submission that, by applying the appropriate test, the Master should have been prepared to strike out the statement of claim. In my opinion it is only in “the plain and obvious case” that the Court is required to proceed in that way. There will be some cases where the Court will find it convenient to treat the issue as going beyond the question as to whether a case as formally raised is “reasonably arguable”. So, for example in Residues Treatment and Trading Co Ltd v Southern Resources Ltd and Ors (1988) 51 SASR 171 at 205 King CJ chose to finally resolve a question which had been fully argued.
The Master has not chosen to follow that course in the present case and I consider that his approach was in accordance with principle.

The issues as argued

With regard to some of the individual points raised, the Master took the view that the particular issue was “arguable” and in some cases the Master said that the matter should be left for determination by a Trial Judge. In expressing himself like that the Master was not abrogating his responsibility to make a decision, as was suggested by the appellants. I treat his remarks in each instance as concluding that the particular point was reasonably arguable and was not so obviously untenable to attract the operation of SCR 46.18 as to lead to the strike out of the statement of claim or some part of the pleadings.
It has not been demonstrated that the Master was in error. In any event I have reviewed each of the arguments for myself in accordance with principle as I have identified it. I reach the same conclusion as did the Master. Moreover, I do not consider that the Court should follow the course suggested by the appellants and use the application as the vehicle for determining the various arguments.
The respondents put their case as an extension to the principles identifiable in Gambotto v WCP Ltd (1995) 182 CLR 433. That case examined the application of s 176(1) of the Corporations Law which enables a company, in general meeting, to alter its articles. In the present case the respondents rely on a comparison between the structure and the operation of s 176(1) and s 491. The appellants point to significant differences which arguably exist in character between the two sections. The parties developed their respective arguments as to the principles discussed in Peters’ American Delivery Co Ltd v Heath and Ors (1939) 61 CLR 457, especially per Dixon J at 504-505, as to extent of a shareholder’s right to exercise voting powers to the prejudice of minority interest consistent with “ordinary notions of fair dealing”. One needs only to state the arguments to see that the matters raised are unsuitable for summary determination.
The respondents, claiming to be oppressed members of Hampton, seek relief pursuant to s 260 of the Corporations Law. On the allegation raised in the statement of claim, it seems reasonably arguable that there is adequate authority in that section to provide the respondents with relief.
The statement of claim puts the claim on many different bases and identifies various ways in which the complaint might be expressed. This could be in terms of simple unfairness with respect to the enjoyment of a proprietary interest or breach of an implied term in a contract. None of the matters on which the appellants seek particulars are matters in respect of which the respondents should now be required to provide further detail.
The pleaded material is sufficient. It provides fair notice to the appellants as to how the cause of action is alleged to have arisen and identifies the material facts alleged to constitute the cause of action.

Conclusion

The Master has not shown to have been in error. After hearing argument I have reached the conclusion that this is not the “plain case” to which SCR 46.18 was intended to apply.
The appeal will be dismissed.

[2000] SASC 104

26 April 2000