Chopsonion Pty Ltd v Mulga Corporation Pty Ltd
[2024] FedCFamC2G 1450
•24 December 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Chopsonion Pty Ltd v Mulga Corporation Pty Ltd [2024] FedCFamC2G 1450
File number(s): ADG 261 of 2020 Judgment of: JUDGE LUCEV Date of judgment: 24 December 2024 Catchwords: PRACTICE AND PROCEDURE – Application in a proceeding– strike out application – pleading misleading and deceptive conduct – need for precision – whether pleading confusing or embarrassing – whether pleading reveals a reasonable cause of action – pleading accessorial liability – definition of “involved” for purposes of accessorial liability – whether required identification of the paragraphs of the definition of “involved” – whether leave to replead paragraphs struck out Legislation: Australian Consumer Law ss 2, 18, 237
Competition and Consumer Act2010 (Cth) Sch 2
Corporations Act 2001 (Cth) ss180, 182
Federal Circuit and Family Court of Australia Act 2021 (Cth) ss 190, 191, 192
Cases cited: Australian Parking and Revenue Control Pty Ltd v Reino International Pty Ltd [2016] FCA 744
Barnes v Forty Two International Pty Ltd [2014] FCAFC 152; (2014) 316 ALR 408
Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592; (2004) 79 ALJR 308; (2004) 212 ALR 357
Dahler v Australian Capital Territory [2014] FCA 946
Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658; (1982) 57 ALJR 80; (1982) 44 ALR 117
Davy v Garrett (1878) 7 Ch D 473
Do Carmo v Ford Excavation Pty Limited [1984] HCA 17; (1984) 154 CLR 234; (1984) 58 ALJR 287; (1984) 52 ALR 231
Fair Work Ombudsman v Eastern Colour Pty Ltd [2011] FCA 803; (2011) 209 IR 263
Forrest v Australian Securities and Investments Commission [2012] HCA 39; (2012) 247 CLR 486; (2012) 86 ALJR 1183; (2012) 291 ALR 399
Giorgianni v The Queen (1985) 156 CLR 473; (1985) 59 ALJR 461; (1985) 58 ALR 641
Harris v Cigna Insurance Australia Ltd [1995] FCA 13; (1995) ATPR 41-445
Knott Investments Ltd v Winnebago Industries, Inc (No 2) [2015] FCA 1214
McKellar v Container Terminal Management Services Ltd [1999] FCA 1101; (1999) 165 ALR 409
Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; (2010) 241 CLR 357; (2010) 84 ALJR 644; (2010) 270 ALR 204
Multigroup Distribution Services Pty Ltd v TNT Australia Pty Ltd and Others (1996) ATPR 41-522
Phillips v Phillips (1878) 4 QBD 127
Pigozzo v Mineral Resources Ltd [2022] FCA 1166
Revill v John Holland Group Pty Ltd [2022] FCAFC 178; (2022) 295 FCR 269; (2022) 321 IR 30
Rural Press Ltd v Australian Competition and Consumer Commission [2003] HCA 75; (2003) 216 CLR 53; (2003) 78 ALJR 274; (2003) 203 ALR 217; [2003] ATPR 41-965
Swiss Re International SE v David Simpson [2018] NSWSC 233; (2018) 352 ALR 607; (2018) 124 ASCR 423
Takemoto v Moody’s Investors Services Pty Limited [2014] FCA 1081
Thorp v Holdsworth (1876) 3 Ch D 637
Trade Practices Commission v David Jones (Australia) Pty Ltd (1985) 7 FCR 109; [1985] ATPR 40-607
Truth About Motorways Pty Ltd v Macquarie Infrastructure Investments Ltd (1998) 42 IPR 1; (1998) ATPR 41-633
Wheelehan v City of Casey (No 12) [2013] VSC 316
Whitby v ZG Operations Australia Pty Ltd (No 2) [2019] FCA 201
Yeshiva Properties No 1 Pty Ltd v Marshall [2005] NSWCA 23; (2005) 219 ALR 112
Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661; (1985) 59 ALJR 776; (1985) 61 ALR 307; (1985) ATPR 40-622
Division: Division 2 General Federal Law Number of paragraphs: 35 Date of last submission/s: 24 February 2023 Date of hearing: 24 February 2023 Place: Perth Counsel for the Applicant: Mr Belperio via CISCO Webex Solicitor for the Applicant: Charlton Rowley Counsel for the Respondent: Mr Djurdjevic via CISCO Webex Solicitor for the Respondent: Hall & Wilcox ORDERS
ADG 261 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: CHOPSONION PTY LTD (APPOINTED CONTROLLER) (ACN 142 890 971)
Applicant
AND: MULGA CORPORATION PTY LTD (ACN 144 810 435) AS TRUSTEE OF THE MULHERIN FAMILY TRUST
Respondent
ORDER MADE BY:
JUDGE LUCEV
DATE OF ORDER:
24 DECEMBER 2024
THE COURT ORDERS THAT:
1.Paragraphs 10 and 11A and subparagraphs 1.4 and 10.3 of the amended statement of claim filed by the Applicant on 5 August 2022 be struck out, with leave to the Applicant to replead those paragraphs and subparagraphs on or before 31 January 2025.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE LUCEV
INTRODUCTION
Before the Court is an application in a proceeding (“Application in a Proceeding”) filed by the respondent, Mulga Corporation Pty Ltd ACN 144 810 435 as Trustee of the Mulherin Family Trust (“MFT”) on 25 October 2022 which originally sought orders:
(a)for security for costs from the applicant, Chopsonion Pty Ltd (Appointed Controller) ACN 142 890 971 (“CPL”);
(b)to strike out various paragraphs of the amended statement of claim (“Amended SOC”);
(c)for the costs of the Application in a Proceeding to be paid by CPL.
CPL’s claim in the substantive proceedings seeks relief in the form of equitable compensation for breach of trust or, in the alternative, compensation under s 237 of the Australian Consumer Law (“ACL”) (being Sch 2 of the Competition and Consumer Act2010 (Cth)) for misleading and deceptive conduct under s 18 of the ACL.
MATERIALS BEFORE THE COURT
The Court has before it relevant material including:
(a)MFT’s Application in a Proceeding;
(b)affidavit of Todd Waugh affirmed 25 October 2022 (“Waugh Affidavit”);
(c)the pleadings, including the amended defence (“Amended Defence”);
(d)MFT’s written submissions on the Application in a Proceeding dated 24 February 2023 (CPL did not provide the Court with written submissions); and
(e)the transcript of the hearing on 24 February 2023.
SECURITY FOR COSTS
A consent order was made on 24 February 2023 relating to an undertaking by certain persons associated with CPL to guarantee payment of any costs awarded against CPL in these proceedings. That disposed of the necessity to deal with the issue of security for costs.
STRIKE OUT
Background
By way of background the Court notes that:
(a)on 19 September 2022 MFT filed its Amended Defence to the Amended SOC, which identified paragraphs in the Amended SOC it submits ought to be struck out;
(b)on 19 October 2022 MFT’s solicitors sent a letter to CPL’s solicitors (“October 2022 Letter”), in which they:
(i)re-identified the four paragraphs in the Amended SOC they submitted should be struck out;
(ii)restated the reasons they allege that the four paragraphs are inadequately pleaded;
(iii)suggested they should be struck out, and that it was otherwise incumbent on CPL to amend its pleadings; and
(iv)foreshadowed this Application in a Proceeding and MFT’s reliance on the October 2022 Letter on the question of costs, should the Application in a Proceeding be required to be brought: Waugh Affidavit, Annexure B; and
(c)on 25 October 2022 MFT filed the Application in a Proceeding.
Orders sought
In relation to striking out paragraphs of the Amended SOC the orders sought by MFT are as follows:
3.Pursuant to section 192(4)(b) of the Act, order that the following paragraphs of the Applicant’s amended statement of claim filed 5 August 2022 be struck out:
a. subparagraph 1.3;
b. paragraph 10;
c. subparagraph 10.3; and
d. paragraph 11A
as the paragraphs are embarrassing and do not disclose a reasonable cause of action against the Respondent.
The reference to:
(a)“the Act”, in [3] of the orders sought is a reference to the Federal Circuit and Family Court of Australia Act 2021 (Cth) (“FCFCOA Act”); and
(b)“subparagraph 1.3” in [3(a)] of the orders sought is erroneous, and there is no dispute that it should refer to “subparagraph 1.4”.
The impugned paragraphs
Subparagraph 1.4
The Amended SOC at [1.4] provides as follows:
1.4[CPL] [w]as a client of the Respondent within the meaning of applicable ethical standards of dealings between the Applicant and the Respondent.
Paragraph 10
2 The Amended SOC at [10] provides as follows:
10.Further or in the alternative to the matters pleaded in paragraphs [8] and [9] herein, the conduct of the Respondent as pleaded in paragraphs [8] and [9] herein:
10.1. Was misleading and deceptive in contravention of s18 of the Australian Consumer Law (Schedule 2 of the Australian Competition and Consumer Act 2010 (Cth)) (“the ACL”) having regard to:
10.1.1. The conduct of the Respondent as pleaded in paragraphs [8] and
[9][10.3] herein.10.1.2. That the Respondent failed to make any enquiries with CPL as to whether the Payments:
10.1.2.1. Were authorised by CPL.
10.1.2.2. Were made to or for the benefit of CPL.
10.1.2.3. That the Payments were self-evidently not to or for the benefit of CPL.
10.2. Caused CPL to suffer loss and damage as follows:
10.2.1. The amount of $130,000.00 being the entirety of the Corpus.
10.2.2. Consequential loss in the amount of $496,751.00 as follows
10.2.2.1.At or around 16 April 2014, CPL had a finance facility (“the Facility”) with borrowings in the amount of $1,175,000.00 (“the Loan Principal”) and subject to Securities (“the Securities”).
10.2.2.1AThe Securities extended to the right to take possession of the Monies held in the Office Trust Account for or on behalf of CPL and more particularly the Corpus and/or the Deposit.
10.2.2.2. If CPL had received or otherwise taken possession of the Corpus and/or the Deposit
the amount of $130,000.00in April 2014, it would have applied those funds in reduction of the Loan Principal to an amount of $1,045,000.00.10.2.2.3. CPL failed to repay the Loan Principal which has attracted interest at the rate of 6% per month.
10.2.2.4. As at the date of this claim, the amount owed under the Facility is an amount of $5,664,865.00.
10.2.2.5. Had the Loan Principal been reduced to $1,045,000.00 the amount owed under the Facility would be an amount of $5,038,114.00.
10.3. The Respondent was involved within the meaning of s2 of the ACL in conduct of Sharpe and/or Mrs Wendy Sharpe which contravened s18 of the ACL as follows:
10.3.1. On or around 26 November 2014, Sharpe requested confirmation from the Respondents that they held the Deposit in the Office Trust Account.
10.3.2. The request pleaded in paragraph [10.3.1] herein, was made by Sharpe for the purpose of providing the response to potential financiers funding the acquisition of the purchase of the Equipment including the Funders.
10.3.3. By email communication from the Respondent to Sharpe dated 26 November 2014, the Respondent confirmed that it held the Deposit in the Office Trust Account “in relation to abattoir equipment”.
10.3.4. The facts pleaded in paragraphs [10.3.1] and [10.3.2] herein are to be inferred from the contents of an email from the Respondent to Sharpe dated 26 November 2014.
10.3.5. On or around 23 December 2014, Sharpe caused:
10.3.5.1. A copy of the email communication referred to in paragraph [10.3.3] herein to be provided to the Lenders.
10.3.5.2. The information set out in paragraph [10.3.3] herein, to be conveyed to the Lenders in a conversation between Ms Annette Conn (for the Lenders) and Ms Wendy Sharpe (for Sharpe) at or around 26 November 2021.
10.3.5.3. A copy of the Invoice to be provided to the Lenders which noted that the Deposit for the purchase of the Equipment was “to be held by [the Respondent]” in the Office Trust Account.
10.3.6.By email communication from Anderson (for FG Agri) to Ms Annette Conn (for the Lenders) dated 20 January 2015, Mr Anderson confirmed that FGA had:
10.3.6.1. Agreed to pay CPL the purchase price for the Equipment.
10.3.6.2. Paid the Deposit as of “late last year”.
10.3.6.3. Agreed to pay all funds to the Lenders through PFM.
10.3.7. Sharpe caused CPL to enter in the Finance Facility on or around 21 January 2015.
10.3.8.In providing financial accommodation to CPL under the Finance Facility, the Lenders relied on the truth of the matters contained in the email communication from the Respondent to Sharpe dated 26 November 2014, referred to in paragraph [10.3.3] herein.
10.3.9. The Respondent’s knew or ought to have known that potential financiers funding the acquisition of the purchase of the Equipment including the Funders would rely on confirmation provided by the Respondents that the Respondents held the Deposit in the Office Trust Account when considering whether to provide financial accommodation to Sharpe or entities related to him by virtue of the matters pleaded in paragraphs [10.3.1] to [10.3.4] herein.
10.3.10.The Payments were made in the circumstances pleaded in paragraphs [8.3.7.1] and [8.3.7.3] herein.
10.3.11.Notwithstanding the matters pleaded in paragraphs [10.3.1] to [10.3.10] herein, the Respondents caused the Payments to be made in the manner pleaded in paragraph [13] of the Defence knowing, as they did, the matters pleaded in in paragraphs [10.3.2] and [10.3.9] herein for the reasons pleaded in paragraph [10.3.1] to [10.3.4] herein.
10.3.12.The conduct of Sharpe and/or Ms Wendy Sharpe as pleaded in paragraphs [10.3] herein was in contravention of s18 of the ACL.
10.3.13.The Respondent was involved in the conduct referred to in paragraph [10.3.12] herein within the meaning of s2 of the ACL for the reasons pleaded in paragraph [8] and [10.3] herein.
10.3.14. Had the Respondent not involved itself in the conduct referred to in paragraph [10.3.11] herein, the Payments would not have been made and would have been applied or been available to have been applied by the Lenders in the manner pleaded in paragraph [10.2.2.5] herein.
Paragraph 11A
The Amended SOC at [11A] provides as follows:
11A. Yet further or in the alternative to the matters pleaded in paragraphs [8] to [10] herein:
11A.1. By virtue of the matters pleaded in paragraph [1.1] herein, Sharpe owed a duty to the Applicant to exercise a reasonable degree of care and diligence in the exercise of powers and the discharge of duties pursuant to s182 of the Corporations Act 2001 (Cth).
11A.2. Sharpe contravened his obligations to the Applicant under s182 of the Corporations Act 2001 (Cth) by engaging in the conduct pleaded in paragraph [10.3] herein.
11A.3. The Respondent was involved in the contravention by Sharpe of his obligations to the Applicant under s182(2) of the Corporations Act 2001 (Cth) by engaging in the conduct pleaded in paragraphs [8] and [10.3] herein.
11A.4. Had the Respondent not involved itself in the conduct referred to in paragraphs [8] and [10.3] herein, the Payments would not have been made and would have been applied or been available to have been applied by the Lenders in manner pleaded in paragraph [10.2.2.5] herein.
11A.5. In consequence of the matters pleaded in paragraphs [11A.1] to [11A.4] herein, the Applicant is entitled to compensation from the Respondent pursuant to s1317H of the Corporations Act 2001 (Cth).
LAW
Strike out – general law
Section 192(4)(b) of the Federal Circuit and Family Court of Australia Act 2021 (Cth) provides that the Court may strike out any part of a party’s claims.
Relevant general principles relating to strike out application include the following:
(a)the purpose of pleadings is to define the issues in dispute with sufficient clarity to enable the parties to understand, and therefore, have the opportunity to answer, the case brought against them: Thorp v Holdsworth (1876) 3 Ch D 637; Phillips v Phillips (1878) 4 QBD 127; Truth About Motorways Pty Ltd v Macquarie Infrastructure Investments Ltd (1998) 42 IPR 1; (1998) ATPR 41-633 at 40,976-40,978 per Foster J, and to provide the parameters by which relevant evidence may be distinguished from irrelevant evidence: Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658; (1982) 57 ALJR 80; (1982) 44 ALR 117 (“Dare”), CLR at 664-665 per Murphy, Wilson, Brennan, Deane and Dawson JJ, and to thereby satisfy basic requirements of procedural fairness, and define the precise issues for determination so that a court may conduct a fair trial, the defining of issues for trial being required from an early stage, lest discovery and other interlocutory processes become misdirected: Multigroup Distribution Services Pty Ltd v TNT Australia Pty Ltd and Others (1996) ATPR 41-522 per Burchett J at 42,679;
(b)all material facts must be stated in a pleading so as to establish a reasonable cause of action, or defence, with material facts being only those relied on to establish the essential elements of the cause of action, and not the evidence by which the facts are to be proved: Do Carmo v Ford Excavation Pty Limited [1984] HCA 17; (1984) 154 CLR 234; (1984) 58 ALJR 287; (1984) 52 ALR 231, CLR at 245 per Wilson J; Dahler v Australian Capital Territory [2014] FCA 946 at [105] per Katzmann J;
(c)a pleading must not be vague or ambiguous or inconsistent, or contain unnecessary or irrelevant allegations and if it is so then it is embarrassing because it places the other party, or parties, in the position of not knowing what is alleged, and it increases expense unnecessarily: Takemoto v Moody’s Investors Services Pty Limited [2014] FCA 1081 at [18] per Flick J (“Takemoto”);
(d)it is not sufficient to plead a conclusion from unstated facts, and where this is done the pleading is embarrassing: Trade Practices Commission v David Jones (Australia) Pty Ltd (1985) 7 FCR 109; [1985] ATPR 40-607;
(e)if the objectionable part of a pleading is so intertwined with the remainder of the pleading, making separation difficult, the appropriate course is to strike out the whole of the pleading: Davy v Garrett (1878) 7 Ch D 473;
(f)any relief to be granted at final hearing must be founded on the pleadings: Dare, CLR at 664 per Murphy, Wilson, Brennan, Deane and Dawson JJ; Pigozzo v Mineral Resources Ltd [2022] FCA 1166 at [17] per Feutrill J; and
(g)well drawn pleadings serve the over-arching civil practice and procedure provisions in ss 190, 191 and 192 of the FCFCOA Act.
(See generally as to pleading principles: Takemoto at [23]-[24] per Flick J; Wheelehan v City of Casey (No 12) [2013] VSC 316 at [25] per Dixon J.)
In relation to pleadings of misleading or deceptive conduct under s 18 of the ACL the importance of precision in framing the alleged contravening conduct has been severally stressed numerous times by superior courts, as follows:
(a)in Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592; (2004) 79 ALJR 308; (2004) 212 ALR 357 at [32] per Gleeson CJ, Hayne and Heydon JJ, it was observed that (footnote omitted):
In this Court, the purchasers emphasised the proposition that the expression “conduct” in s 52 extends beyond “representations”. That proposition is sound. But the purchasers cannot claim any advantage out of an extension of “conduct” beyond “representation” in this case, since their case as pleaded was one based on representations to them by the agent.
(b)in Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; (2010) 241 CLR 357; (2010) 84 ALJR 644; (2010) 270 ALR 204 at [5] per French CJ and Kiefel J it was observed that pleading of conduct in trade or commerce that is misleading or deceptive or is likely to mislead or deceive:
… requires a clear identification of the conduct said to be misleading or deceptive. Where silence or non-disclosure is relied upon, the pleading should identify whether it is alleged of itself to be, in the circumstances of the case, misleading or deceptive conduct or whether it is an element of conduct, including other acts or omissions, said to be misleading or deceptive.
(c)in Barnes v Forty Two International Pty Ltd [2014] FCAFC 152; (2014) 316 ALR 408 at [8] per Siopis J it was observed that:
… It is recognised, of course, that a claim alleging misleading or deceptive conduct can be founded on conduct other than the making of a misrepresentation. However, where such a claim is made, it must be distinctly pleaded, and a party will not be able to rely on the claim alleging a false representation to run a wider misleading or deceptive conduct claim.
(d)in Australian Parking and Revenue Control Pty Ltd v Reino International Pty Ltd [2016] FCA 744 at [73] per Perry J the Federal Court observed that the paragraph objected to:
… states a conclusion without sufficient information about the relevant “conduct” and why it is (or is likely to be) misleading and deceptive so as to give PT Consultants fair notice of the basis of the claim. It is no answer to submit, as does Australian Parking, that these are matters peculiarly within PT Consultants' knowledge. If the pleading is speculative, it has no place in a statement of claim as I have already said. If the allegations are based upon inferences, then the basis on which the inferences are drawn should be properly pleaded so that PT Consultants is aware of the case which it is asked to meet.
(e)the New South Wales Supreme Court in Swiss Re International SE v David Simpson [2018] NSWSC 233; (2018) 352 ALR 607; (2018) 124 ASCR 423 at [35] per Hammerschlag J observed that where significant charges of misleading or deceptive conduct with “potentially very significant consequences” were being made then it was incumbent upon the amending party “to articulate their case with precision”.
(f)respondents ought not to be required to speculate as to what are the circumstances alleged to give the facts alleged the quality of being misleading or deceptive: Harris v Cigna Insurance Australia Ltd [1995] FCA 13; (1995) ATPR 41-445 at 41,009 per Kiefel J; and
(g)what it is alleged that the impugned statements conveyed to their intended audience must be identified: Forrest v Australian Securities and Investments Commission [2012] HCA 39; (2012) 247 CLR 486; (2012) 86 ALJR 1183; (2012) 291 ALR 399 at [26]-[27] per French CJ, Gummow, Hayne and Kiefel JJ.
A statement of claim that:
(a)pleads a conclusion without pleading a material fact is, to this extent, deficient: Fair Work Ombudsman v Eastern Colour Pty Ltd [2011] FCA 803; (2011) 209 IR 263 at [39] per Collier J; and
(b)repeats the language of a provision of an Act of Parliament, and then asserts a contravention of that provision, without more, will be struck out: McKellar v Container Terminal Management Services Ltd [1999] FCA 1101; (1999) 165 ALR 409 at 418 per Weinberg J.
CONSIDERATION
Paragraph 1.4 - consideration
In subparagraph 1.4 CPL pleads that it was a client of MFT within the meaning of “applicable ethical standards” of dealings between CPL and MFT, but does not plead the source of the standards or which particular standards are applicable.
CPL expressed surprise that MFT pressed the objection, indicating that on 21 February 2023 it had sent MFT a letter which offered to make an amendment, as follows:
[CPL] [w]as a client of the respondent within the meaning of the accounting and professional and ethical standards (APESS) which governed professional and ethical dealings between the applicant and the respondent from time to time and more particularly APESS 110 and 310 …
To plead, as CPL has done in subparagraph 1.4, “applicable ethical standards” without identifying those standards or the relevant provisions of those standards is a plainly deficient pleading. CPL appear to recognise the deficiency in the pleading at subparagraph 1.4, their solicitors having written to MFT’s solicitors proffering an amendment in the terms set out at [16] above. For some reason, no amendment has been sought. It follows that subparagraph 1.4 is deficiently pleaded and ought to be struck out.
Paragraph 10 - consideration
At paragraph 10 of the Amended SOC it is pleaded that the conduct of MFT relied on is that as pleaded in paragraphs 8 and 9 of the Amended SOC. Inconsistently, and confusingly, at sub-subparagraph 10.1.1 of the Amended SOC it is pleaded that the conduct of MFT relied on is that pleaded also in subparagraph 10.3 of the Amended SOC. Paragraph 10.1.1 of the Amended SOC is therefore confusing, as it does not refer to paragraph 9 of the Amended SOC at all but to paragraph 8, and subparagraph 10.3 of the Amended SOC and is therefore embarrassing.
There is difficulty in identifying the conduct complained of in paragraph 8 of the Amended SOC. It is a long and complex paragraph which contains pleadings of an alleged breach of trust. The alleged impugnable misleading or deceptive conduct is not identified with any precision in paragraph 8 of the Amended SOC and whether the impugnable conduct took the form of something written, something oral, something gestural, or silence in circumstances where an explanation was necessary, or any combination of these things, is not made apparent. Nor is it apparent whether the alleged conduct occurred on one or more occasions. There is no pleading that any representation was false or that any conduct led to a misleading and deceptive state of affairs, or that if there was such conduct who precisely was misled or deceived by that conduct, or that MFT had any knowledge of any falsity.
MFT is therefore required to engage in speculation as to precisely what circumstances give rise to conduct which is said to be misleading or deceptive on the basis of the alleged facts in connection with paragraph 8 of the Amended SOC, and on that basis paragraph 10 of the Amended SOC is embarrassing and ought to be struck out.
Paragraph 9 of the Amended SOC does not assist CPL as it pleads a breach of trust and an entitlement to compensation and consequential loss (being the consequential loss outlined in 10.2 of the Amended SOC).
In relation to subparagraph 10.3 there is no pleading of any representation of falsity, or knowledge of falsity, on the part of MFT.
There are further difficulties with subparagraph 10.3. It purports to allege that MFT was “involved”, within the meaning of that word in s 2(1) of the ACL, in misleading and deceptive conduct, that is, that MFT is liable as an accessory for misleading and deceptive conduct.
Section 2(1) of the ACL provides that:
involved: a person is involved, in a contravention of a provision of this Schedule or in conduct that constitutes such a contravention, if the person:
(a) has aided, abetted, counselled or procured the contravention; or
(b)has induced, whether by threats or promises or otherwise, the contravention; or
(c)has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or
(d) has conspired with others to effect the contravention.
What is required for involvement is actual not constructive knowledge, with actual knowledge able to be inferred: Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661; (1985) 59 ALJR 776; (1985) 61 ALR 307; (1985) ATPR 40-622; Giorgianni v The Queen (1985) 156 CLR 473; (1985) 59 ALJR 461; (1985) 58 ALR 641. And, in relation to pleading accessorial liability, it is necessary for an applicant to plead that the alleged accessory, here MFT, participated in, or assented to, the principal contravention with prior knowledge of all the essential elements of the contravention: Rural Press Ltd v Australian Competition and Consumer Commission [2003] HCA 75; (2003) 216 CLR 53; (2003) 78 ALJR 274; (2003) 203 ALR 217; [2003] ATPR 41-965 at [48] per Gummow, Hayne and Hayden JJ; Knott Investments Ltd v Winnebago Industries, Inc (No 2) [2015] FCA 1214 at [35] per Yates J. A claim alleging accessorial liability is akin to a claim of fraud: knowledge and intention are of central importance, and any such allegations must be made clearly if proceedings are to be conducted fairly: Whitby v ZG Operations Australia Pty Ltd (No 2) [2019] FCA 201 at [29] per Thawley J; Yeshiva Properties No 1 Pty Ltd v Marshall [2005] NSWCA 23; (2005) 219 ALR 112 at [14] per Bryson JA (with whom Mason P and Beazley J agreed). Knowledge of falsity, misleading and deceptive character needs to be pleaded, and in subparagraph 10.3 pf the Amended SOC there are no proper pleadings of falsity, by anyone, or pleadings of knowledge of that falsity. A further difficulty is that the pleading of involvement at sub-subparagraph 10.3.13 of the Amended SOC does not identify which of the paragraphs of the definition of “involved” in s 2(1) of the ACL are alleged to be the grounds of the alleged involvement: Revill v John Holland Group Pty Ltd [2022] FCAFC 178; (2022) 295 FCR 269; (2022) 321 IR 30 at [88] per Feutrill J (with whom Bromberg and Banks-Smith JJ agreed). In the circumstances the alleged accessorial liability in subparagraph 10.3 of the Amended SOC is based on no more than bare assertion, and MFT cannot know what kind of involvement is alleged, and subparagraph 10.3 of the Amended SOC does not therefore disclose a reasonable cause of action. It follows that subparagraph 10.3 of the Amended SOC ought to be struck out.
It follows from the above that paragraph 10 and sub-paragraph 10.3 of the Amended SOC ought to be struck out as embarrassing and failing to disclose a reasonable cause of action.
Paragraph 11A - consideration
Sections 180 and 182 of the Corporations Act 2001 (Cth) (“Corporations Act”) provide as follows:
180 Care and diligence—civil obligation only
Care and diligence—directors and other officers
(1)A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:
(a)were a director or officer of a corporation in the corporation’s circumstances; and
(b)occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.
Note:This subsection is a civil penalty provision (see section 1317E).
Business judgment rule
(2)A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they:
(a) make the judgment in good faith for a proper purpose; and
(b)do not have a material personal interest in the subject matter of the judgment; and
(c)inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and
(d)rationally believe that the judgment is in the best interests of the corporation.
The director’s or officer’s belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold.
Note:This subsection only operates in relation to duties under this section and their equivalent duties at common law or in equity (including the duty of care that arises under the common law principles governing liability for negligence)—it does not operate in relation to duties under any other provision of this Act or under any other laws.
(3) In this section:
business judgment means any decision to take or not take action in respect of a matter relevant to the business operations of the corporation.
…
182 Use of position—civil obligations
Use of position—directors, other officers and employees
(1)A director, secretary, other officer or employee of a corporation must not improperly use their position to:
(a) gain an advantage for themselves or someone else; or
(b) cause detriment to the corporation.
Note: This subsection is a civil penalty provision (see section 1317E).
(2)A person who is involved in a contravention of subsection (1) contravenes this subsection.
Note 1: Section 79 defines involved.
Note 2: This subsection is a civil penalty provision (see section 1317E).
There are difficulties with the pleading of subparagraph 11A of the Amended SOC.
First, the pleaded words “duty to the Applicant to exercise a reasonable degree of care and diligence in the exercise of powers and the discharge of duties” in subparagraph 11A.1 of the Amended SOC, are words said in s 180, not s 182, of the Corporations Act. As presently pleaded subparagraph 11A.1 of the Amended SOC is both confusing and embarrassing as it is based on both improper legal and factual premises.
Second, s 180 of the CorporationsAct does not provide for accessorial liability for any breach thereof. In this respect it may be contrasted with each of ss 181(2), 182(2) and 183(3) of the Corporations Act which expressly so provide. Hence, the plea in subparagraph 11A.3 of the Amended SOC of MFT’s being “involved in the contravention” and the related plea in subparagraph 11A.4 of the Amended SOC of MFT’s involvement are confusing because:
(a)section 180 of the Corporations Act, the words of which are pleaded in subparagraph 11A.1 of the Amended SOC, does not provide for accessorial liability;
(b)if it was intended to plead, as the words in subparagraph 11A.3 of the Amended SOC might appear to indicate, a contravention of s 182(2) of the Corporations Act, no primary contravention of s 182(2) of the Corporations Act has been pleaded; and
(c)even if a primary contravention of s 182(2) of the Corporations Act had been pleaded, the pleading of involvement at subparagraphs 11A.3 and 11A.4 of the Amended SOC does not identify which of the paragraphs of the definition of “involved” in s 2(1) of the ACL are alleged to be the grounds of the alleged involvement: Revill at [88] per Feutrill J (with whom Bromberg and Banks-Smith JJ agreed). In the circumstances any alleged accessorial liability in subparagraphs 11A.3 and 11A.4 of the Amended SOC is based on no more than bare assertion, and MFT cannot know what kind of involvement is alleged, and subparagraphs 11A.3 and 11A.4 of the Amended SOC do not therefore disclose a reasonable cause of action.
Third, if it was intended to allege a contravention of s 182 of the CorporationsAct by MFT, the elements of s 182 of the Corporations Act are not pleaded.
In the above circumstances paragraph 11A of the Amended SOC is confusing, embarrassing and does not establish a reasonable (or any) cause of action. It follows that paragraph 11A of the Amended SOC will be struck out.
LEAVE TO REPLEAD?
The Court has determined that paragraphs 10 and 11A and subparagraphs 1.4 and 10.3 of the Amended SOC ought to be struck out. The question arises as to whether leave to replead ought to be granted. In circumstances where:
(a)there are some obviously not insignificant legal and factual complexities involved in the matter;
(b)notwithstanding the aforementioned complexities it is not apparent that the matter is one that cannot be properly pleaded (although in this case CPL might consider whether less is better); and
(c)only a Statement of Claim and the Amended SOC have thus far been filed,
the Court is of the view that it is appropriate to grant leave to replead paragraphs 10 and 11A and subparagraphs 1.4 and 10.3 of the Amended SOC. Given the time of year there will be five weeks – to 31 January 2025 – to replead.
CONCLUSION AND ORDERS
The Court has concluded that:
(a)the Court has determined that paragraphs 10 and 11A and subparagraphs 1.4 and 10.3 of the Amended SOC ought to be struck out;
(b)leave to replead paragraphs 10 and 11A and subparagraphs 1.4 and 10.3 of the Amended SOC by 31 January 2025 ought to be granted,
and there will be orders accordingly.
The Court will hear the parties as to costs.
I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Lucev. Associate:
Dated: 24 December 2024
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