CC Containers Pty Ltd v Lee
[2011] VSC 537
•23 November 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
Corporations List
S CI 2010 6056
| CC CONTAINERS PTY LTD (ACN 128 976 803) & ORS | Plaintiffs |
| v | |
| DESMOND MING LEE & ORS | Defendants |
JUDGE: | FERGUSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 28 October 2011 | |
DATE OF JUDGMENT: | 23 November 2011 | |
CASE MAY BE CITED AS: | CC Containers Pty Ltd & ors v Lee & ors | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 537 | |
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PRACTICE AND PROCEDURE – Application to amend statement of claim – Whether proposed pleading should be allowed in the exercise of the discretion – Whether proposed statement of claim pleaded material facts – Claim of tort of conspiracy – Alleged breach of fiduciary duty by a director – Allegations of receipt of secret commission and fraud.
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TORTS – Tort of conspiracy – Combination or agreement - Requirement for intention to injure – Overt acts said to be post injury.
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr S R Horgan SC with Mr J Brereton | Middletons |
| For the Third, Fourth and Fifth Defendants | Mr J Bock | Jack Bock Lawyers |
| For the Sixth Defendant | Mr R N Garratt QC with Mr B Guzzo | Doherty & Colleagues |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 2
Pleading and amendment principles when the claim is one of conspiracy............................ 3
The plaintiffs’ pleading against Mr Neale.................................................................................... 5
The repair fraud pleading........................................................................................................... 6
The sale of business and breach of fiduciary and statutory duties pleading.................... 12
Submissions of the parties............................................................................................................. 13
The repair fraud pleading......................................................................................................... 13
The sale of business and breach of statutory and fiduciary duties pleading.................... 17
Does the proposed amendment disclose what claim Mr Neale has to meet and is the claim arguable?.............................................................................................................................................................. 17
HER HONOUR:
Introduction
The claims in this proceeding arise out of the operation of a shipping container repair and storage business and its purchase by the first plaintiff, CC Containers Pty Ltd (“CCC”). The business was purchased from a company that is referred to by the parties as CCC Old Co. That company is in liquidation. The third plaintiff, Mediterranean Shipping Company SA (“MSC”) was engaged in the carriage of goods by sea, and the second plaintiff, Mediterranean Shipping Company (Aust) Pty Ltd (“MSCA”), arranged for its shipping containers to be repaired by CCC Old Co before February 2008. MSC is the ultimate holding company of both CCC and MSCA.
A number of allegations of fraud are made against the defendants. For the purposes of this application, the only relevant instance of alleged fraud is what is referred to as the “repair fraud”. The plaintiffs’ main claim is for the tort of conspiracy and for breach of fiduciary duty. In broad terms, it is alleged that false repair invoices (which either inflated the value of the repairs or duplicated legitimate invoices) were issued to MSC and MSCA and paid by them. The plaintiffs then allege that the moneys paid by MSC and MSCA were shared by CCC Old Co and two of the defendants, one being Christopher Howard Neale, who is the sixth defendant and who was a director of MSCA at the relevant times. It is also alleged that when CCC purchased the shipping container storage and repair business, Mr Neale knew that the sale agreement contained warranties which were false and untrue and that the financial performance of CCC Old Co was not that which was disclosed to CCC and MSCA.
The plaintiffs seek leave to file and serve a second further amended statement of claim. Mr Neale opposes that application.
Mr Neale was not a party to the proceeding when it was first commenced. Leave to join Mr Neale as a defendant was granted on 13 May 2011 and shortly after that time a further amended statement of claim was served. Counsel for Mr Neale identified what he characterised as shortcomings in that pleading and notified counsel for the plaintiffs affording them an opportunity to re-plead the claim. The plaintiffs then served their proposed second further amended statement of claim and sought leave to file it. Mr Neale submits that the proposed second further amended statement of claim does not overcome critical gaps in the earlier pleading and contends that this indicates that a tenable claim cannot be pleaded against him. In the circumstances, Mr Neale says that the proceeding should be dismissed as against him.
For the more detailed reasons below, leave to file and serve the second further amended statement of claim will be granted. The pleading against Mr Neale discloses what claim he has to meet and is arguable.
Pleading and amendment principles when the claim is one of conspiracy
A pleading must contain in summary form a statement of all the material facts on which the party relies.[1] The Court has a discretion as to whether to allow a pleading to be amended. Where there is no prejudice, amendments are generally allowed.[2] On a strike out application or where leave to amend is opposed, it is assumed that the matters pleaded can be proven.[3] If the case pleaded is arguable, that is all that is required to permit the amended pleading to be filed. Its ultimate success or failure is a matter for determination at trial.[4]
[1]Rule 13.02 Supreme Court (General Civil Procedure) Rules 2005.
[2]The Commonwealth of Australia v Verwayen (1990) 170 CLR 394 at 456.
[3]428 Little Bourke Street Pty Ltd v Lonsdale Street Café [2009] VSC 135 [1] to [3]; Imobilari Pty Ltd v Opes Prime Stockbroking Pty Ltd (2008) 252 ALR 41 [4].
[4]Ibid; Hall v National & General Insurance Co Ltd [1967] VR 355 at 367.
There are two reasons why material facts must be pleaded. First, such a pleading enables a party’s opponent and the Court to know what the case is that is to be met. Secondly, it discloses whether the party has a claim or defence (whichever may be the case) which is known to law.[5] In more recent times, courts have been more willing to allow a pleading to stand if these prerequisites are satisfied when the pleading and particulars are read together.[6] Nevertheless, what the contended case is must be pleaded and the pleading must disclose a complete cause of action.
[5]Australian Wool Innovation Pty Ltd v Newkirk [2005] FCA 290 at [20] to [26].
[6]Weston v Publishing & Broadcasting Limited (2011) 83 ACSR 206 at 354, [668]-[669].
It is well established that fraud and conspiracy are allegations which should not be made lightly.[7] Allegations of criminality, fraud or serious wrongdoing must be pleaded with precision and sufficient supporting particularity.[8] The rules of Court require that particulars be given of any fraudulent intention that is alleged.[9]
[7]Hughes v Western Australian Cricket Association (1986) 69 ALR 660 at 706.
[8]BATAL v Gordon (No. 3) [2009] VSC 619 at [15].
[9]Rule 13.10(3)(a) Supreme Court (General Civil Procedure) Rules 2005.
The discretion to allow a proposed amendment is unlikely to be exercised if the proposed amended pleading would be liable to be struck out. In this regard, the relevant principles are well known. A pleading will be struck out if it is:
... ‘so obviously untenable that it cannot possibly succeed’; ‘manifestly groundless’; ‘so manifestly faulty that it does not admit of argument’; ‘discloses a case which the Court is satisfied cannot succeed’; ‘under no possibility can there be a good cause of action’; ‘be manifest that to allow them (the pleadings) to stand would involve useless expense’.[10]
[10]General Steel Industries Inc v Commissioner for Railways(1964) 112 CLR 125 at 129.
In Dey v Victorian Railways Commissioners,[11] Dixon J said:
A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court with or without a jury. The fact that a transaction is intricate may not disentitle the court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action as frivolous and vexatious and an abuse of process. [12]
[11](1948) 78 CLR 62.
[12]Ibid. at 91.
Conspiracy may take one of two forms:
(1)an “unlawful means” conspiracy in which the participants combine together to perform acts which are themselves unlawful; and
(2)a combination to perform acts which, although not themselves unlawful, are done with the sole or predominant purpose of injuring the claimant.[13]
[13]Australian Wool Innovation Limited v Newkirk [2005] FCA 290 at [60].
The learned authors of Bullen & Leake & Jacob’s Precedents of Pleadings identify the necessary elements that must be pleaded where the tort of conspiracy is alleged:
(a)a combination or agreement between two or more individuals (required for both types of conspiracy);
(b)an intent to injure (required for both types of conspiracy but must be shown as the sole or predominant purpose for type (2) above);
(c)pursuant to which combination or agreement and with that intention certain acts were carried out;
(d)resulting loss and damage to the claimant. [14]
[14]Bullen & Leake & Jacob’s Precedents of Pleadings, volume 2, 16th edition, Sweet & Maxwell Limited, London 2008 at 855 [51-02].
A conspiracy can be proved without evidence of an express agreement:[15]
A court is entitled to have regard to the overt acts pleaded, and to infer from those acts that there was an agreement to further the common object of the combination. All of those said to be parties to the conspiracy should be sufficiently aware of the surrounding circumstances, and share the same object, for it properly to be said that they are acting in concert.[16]
[15]Australian Wool Innovation Limited v Newkirk [2005] FCA 290 at [62]; Dresna Pty Ltd v Misu Nominees Pty Ltd [2003] FCA 1537, confirmed on this point by the Full Court of the Federal Court in Dresna Pty Ltd v Misu Nominees Pty Ltd [2004] FCAFC 169 at [7] to [13].
[16]Dresna Pty Ltd v Misu Nominees Pty Ltd [2003] FCA 1537 at [103] confirmed on appeal in this respect in Dresna Pty Ltd v Misu Nominees Pty Ltd [2004] FCAFC 169 at [7] to [13]; Australian Wool Innovation Limited v Newkirk [2005] FCA 290 at [62].
An intention to injure is an important part of establishing the tort of conspiracy. In this regard, a conspiracy to injure a person is distinguishable from an agreement to do an unlawful act that results in damage to that person.[17]
[17]Dresna Pty Ltd v Misu Nominees Pty Ltd[2004] FCAFC 169 at [7].
The plaintiffs’ pleading against Mr Neale
The plaintiffs say that they have pleaded properly against Mr Neale both types of the tort of conspiracy, as well as breach of fiduciary and statutory duties, fraud and receipt of a secret commission.
The repair fraud pleading
The plaintiffs noted that the form of the proposed pleading follows exactly that which is provided for conspiracy claims in Bullen & Leak & Jacob’s Precedents of Pleadings.[18]
[18]Counsel relied on Bullen & Leake & Jacob’s Precedents of Pleadings, 13th edition, Sweet & Maxwell, London 1990, Section 25 at 220ff. Different pleadings are contained in the current version of the publication (Bullen & Leake & Jacob’s Precedents of Pleadings, volume 2, 16th edition, Sweet & Maxwell Limited, London 2008).
In addition to Mr Neale, the relevant defendants in relation to the alleged repair fraud are Desmond Lee, Kevin Chong and Kain Chong. The relevant parts of the proposed pleading against Mr Neale are as follows:
12.During the period from at least late October 2002 to about late February 2008 each of CCC Old Co, Mr Lee, Kevin Chong, Kain Chong and Mr Neale, unlawfully conspired to injure MSC and MSCA by unlawful means (“the repair fraud”), namely by:
(a)issuing to MSC and MSCA false shipping container repair invoices which:
(i)inflated the value of the repairs to which those invoices related; and
Particulars
The inflation of the shipping container repair invoices is evidenced by or to be inferred from a conversation which occurred between Jay Ho, CCC Old Co Depot Manager (“Mr Ho”) and Thai Nguyen, CCC Old Co Maintenance and Repair Administration Officer (“Mr Nguyen”). Such conversation occurred in about August 2003, at the premises of CCC Old Co and Mr Ho.
[Further particulars are given of the alleged conversation but no reference is made to Mr Neale].
The unlawfulness of the inflated invoices arises by reason of at least ss 82, 83 and 83A of the Crimes Act 1958 (Vic).
(ii)duplicated invoices for repairs which had already been completed;
Particulars
The duplication of shipping container repair invoices is evidenced by or to be inferred from a conversation which occurred between Mr Ho and Mr Nguyen in about August 2003, shortly after the conversation relating to the inflation of preparing invoices, particularised above. Such conversation occurred at the premises of CCC Old Co and Mr Ho.
[Further particulars are given of the conversation, but again, no reference is made to Mr Neale].
The duplicated invoices were in writing and may be inspected at the offices of the solicitors for the plaintiffs by prior appointment.
The unlawfulness of the duplicated invoices arises by reason of at least ss 82, 83 and 83A of the Crimes Act 1958 (Vic).
Further particulars of the duplicated repair invoices for the period between 2005 and 2008 are included on the computer disc served herewith. (“Loss and Damage CD”).
with the intention of causing MSC and MSCA to pay such inflated and duplicate repair invoices (together “false fepair invoices”);
(b)sharing and distributing the proceeds, or alternatively a portion of the proceeds, derived from false repair invoices between each of CCC Old Co, Kain Chong and Mr Neale.
Particulars
The sharing and distribution of the proceeds derived from the false repair invoices is evidenced by or to be inferred from …
(iii)in the case of Mr Neale (as pleaded in paragraph 13(d) below):
1.between late October 2002 and late February 2008 the depositing of amounts by Kain Chong’s company, Ackland Forge, into the bank account of Mr Neale’s company, Dawn Trading:
a.within a day or days of the payment of false repair invoices by MSC and/or MSCA; and
b.which generally equated to an amount of between 2.00 percent and 3.00 percent of the amounts paid by MSC and/or MSCA to CCC Old Co.
2.between at least 5 July 2004 and about late February 2008, the issuing of invoices by Mr Neale’s company, Dawn Trading, to Kain Chong’s company, Ackland Forge. Such invoices being:
a.issued on the same day (but sometimes the day after) Ackland Forge issued an invoice to CCC Old Co for “Discount on Invoices of MSC…” or the false repair invoices were paid by MSC and/or MSCA; and
b.endorsed as being for “…work performed.”
(“Dawn Trading Invoices”)
The plaintiffs are unable to give particulars of Dawn Trading Invoices which may have been raised prior to 5 July 2004 as Mr Neale advised in an email to the plaintiffs’ solicitor sent on 30 November 2010 that he does:
“Not have earlier records as [he has] held tax invoices, receipts & details in line with the 5 year requirements of the Tax Department.”
12AIt was the purpose of the repair fraud to defraud and thereby injure, MSC and MSCA, alternatively the repair fraud was aimed at or directed at MSC and MSCA for the benefit of CCC Old Co, Kain Chong and Mr Neale acting in combination to effect the repair fraud as referred to in paragraph 12 above.
Particulars
The plaintiffs refer to the particulars subjoined to paragraph 12 above and the material facts pleaded in paragraph 13 below.
13In pursuance of the repair fraud, the defendants and CCC Old Co did the following overt acts:
(a)Mr Lee and Kevin Chong;
(i)caused CCC Old Co to issue the false repair invoices;
[Particulars of this allegation are included but do not refer to Mr Neale].
(b)CCC Old Co:
(i)received payment for the false repair invoices from MSC and/or MSCA;
[Particulars are given of this allegation but do not refer to Mr Neale].
(ii)paid Kain Chong’s company, Ackland Forge, for the Ackland Forge invoices which were marked “Discount on Invoices of MSC … “.
Particulars
Further particulars are contained on the Loss and Damage CD.
(c)Kain Chong within a day or days of the payment of the false repair invoices by MSC and/or MSCA:
(i)caused his company, Ackland Forge, to issue the Ackland Forge invoices to CCC Old Co for “Discount on Invoices of MSC …”.
[Particulars are given of this allegation but do not refer to Mr Neale].
(ii)received from CCC Old Co the amount of the Ackland Forge invoices marked “Discount on Invoices of MSC …” into a bank account which was either directly or indirectly controlled or operated by him.
[Particulars are given of this allegation but do not refer to Mr Neale].
(iii)caused an amount to be paid to Mr Neale’s company, Dawn Trading; and
Particulars
Such payments were by cheque:
(i)made payable to Dawn Trading; and
(ii)after 5 July 2004 were in the amount of the Dawn Trading Invoices issued by Mr Neale’s company, Dawn Trading, to Ackland Forge.
Further particulars are contained on the Loss and Damage CD.
(iv)(in the period between at least 5 July 2004 and about late February 2008) received from Mr Neale’s company, Dawn Trading, the Dawn Trading Invoices which were issued to his company, Ackland Forge;
Particulars
The Dawn Trading invoices:
(i)were in writing;
(ii)can be inspected at the offices of the solicitors for the plaintiff by prior appointment;
(iii)were for an amount which generally equated to an amount between 2.00 percent and 3.00 percent of the amount remitted by MSC and/or MSCA to CCC Old Co, as evidenced by the weekly remittance advices;
(iv)purported to be for “… work performed”.
Further particulars are contained on the Loss and Damage CD.
(d)Mr Neale whilst at all times being a director of MSCA;
(i)within a day or days of both the payment of the false repair invoices by MSC and/or MSCA and Kain Chong’s company, Ackland Forge, issuing the Ackland Forge Invoices to CCC Old Co for “Discount on Invoices of MSC ..”:
1.received payments from Ackland Forge, into a bank account which was either controlled or operated by him in an amount which generally equated to approximately between 2.00 percent and 3.00 percent of the amount remitted by MSC and/or MSCA to CCC Old Co; and
Particulars
ANZ Bank Account BSB …, account number … in the name of Dawn Trading Pty Ltd (“the Dawn Trading account”).
The bank statements of the Dawn Trading account can be inspected at the offices of the plaintiffs’ solicitors by prior appointment.
Further particulars are contained on the Loss and Damage CD.
2.(in the period between at least 5 July 2004 and about late February 2008) caused his company, Dawn Trading, to issue the Dawn Trading invoices to Ackland Forge for “…work performed”;
Particulars
The Dawn Trading invoices:
(v)were in writing;
(vi)can be inspected at the offices of the solicitors for the plaintiff by prior appointment;
(vii)(were for an amount which generally equated to an amount between 2.00% and 3.00% of the amount remitted by MSC and/or MSCA to CCC Old Co, as evidenced by the weekly remittance advices.
Further particulars are contained on the Loss and Damage CD.
The plaintiffs are unable to give particulars of the Dawn Trading invoices in the period prior to 5 July 2004 as Mr Neale advised in an email to the plaintiffs’ solicitor on 30 November 2010 that he does:
“not have earlier records as [he has] held tax invoices, receipts and details in line with the 5 year requirements of the tax department”.
(ii)thereby joined in the repair fraud (from at least October 2002) and acted in collaboration with the unlawful acts of each of CCC Old Co, Mr Lee, Kevin Chong and Kain Chong; and
(iii)otherwise:
1.failed to disclose to MSCA the unlawful acts of each of CCC Old Co, Mr Lee, Kevin Chong and Kain Chong; and
2.failed to disclose to MSCA his receipt of a portion of the proceeds of the false repair invoices.
13A.Further or alternatively, by reason of the conduct alleged in paragraphs 12 to 13 (inclusive), each of CCC Old Co, Mr Lee, Kevin Chong, Kain Chong and Mr Neale unlawfully conspired with each other to cause MSC and/or MSCA to pay amounts to CCC Old Co to which it was not entitled, with the sole or predominant purpose of injuring MSC and/or MSCA.
Particulars
The plaintiffs refer to and repeat the particulars to paragraphs 12 and 13 above.
13B.Further by reason of the conduct alleged, or alternatively the amounts received, or alternatively the raising of the Dawn Trading invoices, referred in paragraphs 12 to 13 (inclusive) Mr Neale:
(a)breached his fiduciary and statutory duties set out in paragraph 10A above by:
(i)joining in and acting in collaboration with the unlawful acts of each of CCC Old Co, Mr Lee, Kevin Chong and Kain Chong; and
(ii)failing to inform MSCA of the creation of the false repair invoices; and
(iii)failing to inform MSCA that the distribution of the proceeds of the false repair invoices amongst CCC Old Co, Kain Chong and himself;
(b)perpetrated a fraud against MSC and MSCA; and
(c)received a secret commission.
Following these paragraphs, there is a pleading for damages. Other equitable and statutory claims and remedies are also sought based on the matters pleaded in support of the conspiracy claim.
The sale of business and breach of fiduciary and statutory duties pleading[19]
[19]This pleading is contained in paragraphs 32A – 32DC of the proposed second further amended statement of claim.
In addition to the repair fraud claim, there is also a claim for breach of fiduciary and statutory duties under ss 181 and 182 Corporations Act 2001 (Cth) against Mr Neale said to arise out of the sale of the shipping container storage and repair business by CCC Old Co to CCC. At the time of the sale, it is alleged that Mr Neale was a director of both CCC and MSCA. It is pleaded that Mr Neale knew by reason of the matters pleaded in paragraphs 12 to 13 (that is, the repair fraud allegations) that the sale of business contained warranties that were false and untrue and that the financial performance of CCC Old Co was not that which was disclosed to CCC and MSCA.[20] It is then pleaded that by reason of this knowledge, Mr Neale breached his fiduciary and statutory duties to CCC and MSCA by:
(a)failing to inform CCC and MSCA that the warranties contained in the sale of business agreement were false;
(b)failing to inform CCC and MSCA that Dawn Trading had been receiving payments from Ackland Forge which generally equated to between 2.00 percent and 3.00 percent of the amounts remitted by MSC and MSCA to CCC Old Co;
(c)allowing the sale of business contract to settle; and
(d)allowing the payment of the purchase price to CCC Old Co.[21]
[20]Paragraphs 32A and 32B of the proposed second further amended statement of claim.
[21]Paragraph 32C (a) of the proposed second further amended statement of claim.
It is also alleged that Mr Neale received a secret commission for 3% of the purchase price[22] and perpetrated a fraud against CCC.[23] Other additional equitable and statutory claims are made and remedies sought based on the same factual allegations.[24]
[22]Paragraph 32C (b) of the proposed second further amended statement of claim.
[23]Paragraph 32C (c) of the proposed second further amended statement of claim.
[24]Paragraph 32D to 32DC of the proposed second further amended statement of claim.
Submissions of the parties
The repair fraud pleading
Mr Neale submits that the plaintiffs have been given an extended opportunity to plead a basis for their claim against him but they cannot and as no adequately pleaded claim can be made against him, the proceeding should be dismissed so far as he is concerned.
In essence, the pleaded allegations in relation to the repair fraud involve a number of steps:
(1)false shipping container repair invoices were issued to MSC and MSCA which inflated the value of the repairs to which the invoices related and duplicated invoices for repairs which had already been completed;
(2)the invoices were paid by MSC or MSCA to CCC Old Co;
(3)within a day or days of the payment of the false repair invoices, Mr Kain Chong’s company, Ackland Forge, issued invoices to CCC Old Co marked “Discount on Invoices of MSC”;
(4)the Ackland Forge invoices were paid by CCC Old Co;
(5)Mr Neale’s company, Dawn Trading, issued to Ackland Forge on the same day invoices in an amount which generally equated to between 2% and 3% of the amount remitted by MSC and/or MSCA to CCC Old Co;
(6)Ackland Forge paid the Dawn Trading invoices.
Mr Neale criticises the pleading as there is no allegation of his involvement with steps 1, 2, 3, 4 or 6. He contends that although the proposed amended pleading alleges a conspiracy to injure MSC and MSCA by unlawful means (being the issuing of false invoices in contravention of the Crimes Act) with the intention of causing MSC and MSCA to pay such false repair invoices, the particulars do not allege any association or dealing involving him to commit these crimes or any overt act performed by him to bring them about. He says that the only matters particularised against him are first, the issue and payment of the Dawn Trading invoices (but there is no allegation that he knew whether the invoices were paid within a day or days of the payment of the false repair invoices by MSC and/or MSCA) and second, that they generally equated to an amount of between 2% and 3% of the amounts paid by MSC and/or MSCA to CCC Old Co.[25] Counsel for Mr Neale noted that “thereby” it is alleged that, whilst Mr Neale was a director of MSCA,[26] he “joined in the repair fraud” from at least October 2002 with Mr Lee and Kevin Chong and Kain Chong.[27] It is also alleged that Mr Neale “failed to disclose” to MSCA their unlawful acts and “his receipt of a portion of the proceeds of the false repair invoices”.[28] Mr Neale contends that central to all of these allegations is knowledge on his part that Mr Lee and Mr Chong were defrauding CCC Old Co (a company with which Mr Neale had no connection) and that Dawn Trading was being paid with part of the proceeds derived from the alleged fraud (though neither Dawn Trading nor Mr Neale played any part in the alleged criminal conduct which extracted the money from MSC or MSCA). Mr Neale says that no means of knowledge is pleaded and nor is it evident why the other defendants should have told Mr Neale about what they were doing. He says that there is no basis for making any allegation of criminal conduct against him and that the allegations are oppressive and an abuse of process. He says that the conspiracy pleading against him in respect of the repair fraud must fall. Similarly he contends that paragraph 13B of the proposed pleading (breach of fiduciary and statutory duties, fraud and secret commission) must fall as it relies on the earlier pleaded paragraphs. Similarly, he submits that the pleading in subsequent paragraphs as to other equitable claims and relief must fall as they too rely on the earlier paragraphs in the pleading.
[25]Paragraphs 12(b)(iii) and 13(d)(i) of the proposed second further amended statement of claim. See [17] above.
[26]It is pleaded that Mr Neale was a director of MSCA from 1 May 1990 to 13 April 2011: paragraph 7B(b) of the proposed second further amended statement of claim.
[27]Paragraph 13(d)(ii) of the proposed second further amended statement of claim. See [17] above.
[28]Paragraph 13(d)(iii) of the proposed second further amended statement of claim. See [17] above.
The plaintiffs contend that the agreement to join in the unlawful acts of creating the false invoices then sharing the proceeds of the repair fraud is to be inferred. They point to the particulars to paragraph 12(b) and the pleading in paragraph 13(d) that:
(a)for six years Mr Neale’s company received amounts from Kain Chong’s company at the same time that Kain Chong’s company issued invoices to CCC Old Co for “Discounts on Invoices of MSC”;
(b)for six years the amounts paid to Mr Neale’s company generally equated to between 2% and 3% of the amounts paid by MSC and/or MSCA to CCC Old Co; and
(c)for about 3 ½ years Mr Neale’s company issued invoices to Kain Chong’s company for “work performed” at about the same time as the “Discount on Invoices of MSC” were issued.
Insofar as the proposed pleading refers to the conspiracy to injure MSC and MSCA by unlawful means by sharing and distributing the proceeds, or alternatively a portion of the proceeds, derived from the repair invoices, Mr Neale makes a number of additional complaints. First, he contends that it entails a logical contradiction because the injury to MSC and MSCA was complete with the payment of the false invoices. So, he says, as the allegation involves matters post the injury it cannot be a conspiracy to injure at all as the injury has already taken place. The plaintiffs submit that Mr Neale’s involvement in the injury to the plaintiffs is contained in the particulars to paragraph 12(b) and what is pleaded in paragraph 13(d), namely:
(a)receipt of the payments from Kain Chong’s company and thereby, joining in the unlawful acts of raising false repair invoices;
(b)failure to disclose unlawful acts to MSC and MSCA; and
(c)failure to disclose receipt of a portion of the proceeds to MSC and MSCA.
Mr Neale also contends that there is a contradiction in the pleaded party. In this regard he says that the allegation is of an agreement between CCC Old Co and four of the defendants to “share” the proceeds whereas the particulars only refer to the company and two of them.
Further Mr Neale says the CD of particulars of loss and damage that has been provided shows that the ratio of between 2% and 3% has been exceeded in some cases and is a different ratio in virtually every case. He says that this contradicts the existence of an agreement to “share” the proceeds. Mr Neale submits that it is consistent only with the particular payment relating to the particular invoice for services and not to the source of the funds to pay for them. The plaintiffs submit that if each payment is rounded to the nearest whole percentage point, there are only three of approximately 240 transactions over a period between October 2002 and February 2008 which are not within the 2 to 3% range. Those exceptions are payments by Ackland Forge to Dawn Trading of:
(a)1.44% of the MSC remittance to CCC Old Co on 10 April 2003;
(b)1.42% of the MSC remittance to CCC Old Co on 21 August 2003; and
(c)4.40% of the MSC remittance to CCC Old Co on 20 April 2006.
The plaintiffs also submitted that Mr Neale was raising factual matters which should be addressed by way of defence and ultimately determined at trial.
The sale of business and breach of statutory and fiduciary duties pleading
As noted above, it is pleaded that Mr Neale had knowledge that the warranties in the sale agreement were false and that the financial performance of CCC Old Co was not that which had been disclosed to the purchasers. The particulars of these allegations refer to the repair fraud allegations made against Mr Neale. Mr Neale submitted that those allegations do not plead knowledge of falsity against him and therefore the sale of business and breach of fiduciary and statutory duties pleading must fall.
Does the proposed amendment disclose what claim Mr Neale has to meet and is the claim arguable?
In my view, the proposed pleading is sufficiently formulated such that leave to file and serve it should be granted. The claim of an unlawful means conspiracy against Mr Neale entails allegations that he unlawfully conspired to injure MSC and MSCA by unlawful means by the issuing to MSC and MSCA of the false shipping container repair invoices and by the sharing and distributing of the proceeds derived from those invoices. Although the only particulars of his alleged involvement in the fraud and the alleged overt acts performed by him are limited to matters concerning the issuing, timing, amount and payment of the Dawn Trading invoices, this does not mean that there is no allegation against him in relation to the issuing of the false repair invoices by CCC Old Co to MSC and MSCA. As noted above, a conspiracy can be proved without evidence of an express agreement. The plaintiffs’ case is that Mr Neale’s involvement to join in the alleged unlawful acts (the alleged false repair invoices and the alleged sharing of the proceeds derived from them) is to be inferred from the other facts pleaded against him.[29] On the basis of the pleaded matters, such a claim is arguable. Whether it will succeed or not is a matter for evidence and submissions at trial. Whilst particulars may have been given stating that the involvement or agreement of Mr Neale to join in the unlawful acts is to be inferred from the other facts alleged, I do not think that the absence of them from the proposed second further amended statement of claim gives rise to a basis to refuse to grant leave for the pleading to be filed and served. That is particularly so when regard is had to the overarching purpose of the rules of court which is to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute.[30] That the case made against Mr Neale is based on inferences to be drawn from other facts is clear from the written and oral submissions made on behalf of the plaintiffs. In this case, those submissions make the giving of further formal particulars otiose.
[29]See [24] above.
[30]Section 7(1) Civil Procedure Act 2010 (Vic). See also the court objective of the Commercial Court, set out in paragraph 2.1 of Practice Note No. 1 of 2010: to provide for the just and efficient determination of commercial disputes by the early identification of the substantial questions in controversy, and the flexible adoption of appropriate and timely procedures for the future conduct of the proceeding which are best suited to the particular proceeding.
As to Mr Neale’s argument that the claim must fail because his alleged involvement is after the injury was sustained, it seems to me that it is arguable that part of the injury is sustained through the distribution of the proceeds paid by MSC and MSCA such that it could be said that he joined in the unlawful acts of raising the false invoices. It is also arguable that Mr Neale’s involvement in the injury will be established if facts are proven that he failed to disclose to MSC and MSCA the unlawful acts and receipt by Dawn Trading of the payments made to it. For the purposes of this application, that is all that is necessary. Again, the success or failure of those arguments is a matter for trial.
Mr Neale’s contention that the pleading is internally inconsistent because only two of the relevant defendants in respect to the alleged repair fraud are said to have shared in the distribution of the proceeds derived from the alleged false invoices yet the claim is against all of them, misinterprets the pleading. In the present case, it is not pleaded that all relevant defendants received a proportion of the repair fraud proceeds. Rather, it is pleaded that all relevant defendants and CCC Old Co unlawfully conspired to injure MSC and MSCA by unlawful means by (in part) sharing and distributing the proceeds between two of the defendants and CCC Old Co. By way of analogy, five people may conspire to defraud a company even though only two of the five are to receive the proceeds of the crime.
As to the final argument by Mr Neale, that the CD of particulars of loss and damage contradicts the claim that the proceeds were shared, this is a factual matter that should be dealt with in his defence and it can be ventilated at trial. Based on the particulars, less than 2%[31] of the transactions particularised fall outside the range of 2 – 3%. If those facts are established at trial, then it is arguable that the pleaded claim of “an amount which generally equated to an amount between 2.00 percent and 3.00 percent” will be made out.
[31]That is, 3 out of 240 transactions – see [27] above.
So far as the claim for breach of fiduciary and statutory duties arising out of the sale of the business is concerned, it seems to me that the proposed pleading ought to be permitted to go forward. As the repair fraud allegations are to stand, the reliance on them as particulars of the knowledge of alleged falsity of the warranties and financial position of the vendor is sufficient for pleading purposes.
The plaintiff will be granted leave to file and serve the proposed second further amended statement of claim.
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CERTIFICATE
I certify that this and the 18 preceding pages are a true copy of the reasons for Judgment of Justice Ferguson of the Supreme Court of Victoria delivered on 23 November 2011.
DATED this twenty third day of November 2011.
Associate
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