Citisecurities Ltd v John Fairfax Holdings Ltd

[1995] FCA 291

IN THE FEDERAL COURT OF AUSTRALIA   )
NEW SOUTH WALES DISTRICT REGISTRY   )   No. G584 of 1994
GENERAL DIVISION                   )

BETWEEN:   Citisecurities Limited
  First Applicant

Citibank Limited & Ors
  Second Applicants

AND:      John Fairfax Holdings Limited
  First Respondent

John Fairfax Group Pty Limited
  Second Respondent

The Parties Referred to in Schedule A hereto

Third Respondents

Desmond Livingstone Nicholl and Keith William Skinner

Fourth Respondents

Baring Brothers Burrows & Co Limited

Fifth Respondent

Mark Burrows
  Sixth Respondent

CORAM:    SHEPPARD J
PLACE:    SYDNEY

DATE:     8 MAY 1995

REASONS FOR JUDGMENT

HIS HONOUR:  By their notice of motion filed on 10 March 1995 the applicants sought particulars from the first, second and third respondents of certain paragraphs of their defence.  On 27 April 1995 I made orders directing the respondents in question ("the respondents") to provide further particulars of para 24 of their defence but otherwise dismissed the motion.  What follows are my reasons for those conclusions.

The action is one of three proceedings presently being heard by the Court.  In it the applicants seek to enforce an indemnity.  The indemnity is contained in an agreement dated 16 December 1991 made between a number of parties including the first applicant (to which I shall refer as "Citisecurities") and the second respondent (to which I shall refer as "Fairfax").  Clause 1.1 of the agreement stated the purpose of the agreement which was, so it was said, to set out the terms on which the vendor, Citisecurities, had agreed to sell and the purchaser (Fairfax, formerly Tourang Limited) had agreed to purchase certain shares and other securities.

Clause 7.3 of the agreement provided that, subject to clauses 7.4 and 7.9 thereof, Tourang (i.e. Fairfax) indemnified each of the "Beneficiaries" and "Associated Persons" against all liabilities and loss, and all costs and expenses, arising from, or incurred in respect of or in connection with any of the "Pre-Completion Liabilities" other than liabilities owed to the "Participating Bondholders".  The expressions "Beneficiaries" and "Associated Persons" were defined in Clause 1.2 of the agreement.  "Associated Persons" meant the "Nominated Advisers" and all of the past and present officers and employees of any of the Beneficiaries or the Nominated Advisers.  "Beneficiaries" was defined to mean, amongst other persons, Fairfax and each of the "Financiers".  The "Financiers" were a number of banks.  Together they constitute the parties to the proceeding described as the "second applicants".  The expression "Nominated Advisers" was defined to mean Baring Brothers Burrows & Co Limited and its related bodies corporate together with a number of other persons.  Baring Brothers Burrows & Co Limited is the fifth respondent in the proceedings.  "Pre-Completion Liabilities" were defined in Clause 1.2 of the agreement to mean all liabilities and obligations of Fairfax or any subsidiary arising out of or having "its" (sic) origin in any act, matter or thing occurring before completion of the agreement.  The "Participating Bondholders" were the holders of bonds issued by Fairfax.

Clause 7.4 of the agreement provided that the indemnity in Clause 7.3 did not extend, inter alia, to liability, loss, costs or expenses arising out of or in relation to fraud, gross negligence or wilful misconduct.  It is unnecessary to refer to Clause 7.9. 

Clause 8.1(b) of the agreement provided that, subject to Clause 7.9, Fairfax indemnified, amongst other persons, each of the Beneficiaries and Associated Persons against all liabilities and loss arising from and all costs and expenses incurred in connection with, any acts or omissions of any of them in connection with, in the course of or in the conduct of the receivership.  Clause 8.2 provided that the indemnity did not extend to liability, loss, costs or expenses arising out of or in relation to fraud, gross negligence or wilful misconduct.

Clause 11.10 of the agreement provided that, except as expressly permitted by the agreement, the purchaser, that is Fairfax, and certain other persons must not, directly or indirectly, make any claim or institute any proceeding against any Beneficiary or Associated Person.  It also provided that Fairfax and certain other persons waived all their rights, powers and remedies and released each Beneficiary and Associated Person from and against all liability, loss, cost and expense, whether at law, in equity or under statute, in relation to any conduct "whether by way of act or omission but excluding any fraud, gross negligence or wilful misconduct by that beneficiary or associated person".

The applicants sue the Fairfax companies on the indemnities provided for in Clauses 7.3, 8.1 and 11.10 of the agreement.  Paragraph 16 of the defence pleads to para 16 of the statement of claim which alleges the entitlement to the indemnity under Clause 8.1.  Paragraph 16 of the defence is a very long paragraph and I do not refer to it fully.  Amongst other things it says that the indemnity sued upon did not, on a proper construction or in terms, extend to liability, loss, costs or expenses arising out of or in relation to fraud, gross negligence or wilful misconduct or any wrongful conduct of the applicants or their agents, that is to say Citisecurities and the banks.  The defence further pleads that, at the time Tourang (i.e. Fairfax) gave the indemnity, the applicants had, to the extent it be found to have occurred, during the bid process, engaged in conduct and/or were aware of a number of matters which are then specified.  These matters are prefaced by the words "they, alternatively to their knowledge, the receivers, Barings and/or Burrows had represented to INP Consortium Limited, Independent Newspapers Plc and/or Anthony John Francis O'Reilly or persons on their behalf collectively referred to as ('INP')..."  There are then a large number of representations set out.  These are taken from the statement of claim relied upon by INP Consortium Limited and others in the action which they bring (No. 154 of 1994).  That action is brought against a number of respondents including the receivers (the fourth respondents in these proceedings), Baring Brothers Burrows and Co Limited and Mr Burrows.  Neither Citisecurities nor any of the banks has been joined in that action as a respondent but in independent proceedings (No. 880 of 1994, No. 883 of 1994 and No. 897 of 1994) INP and other applicants have sued Citisecurities and the banks on causes of action similar to those brought against the other respondents in the case presently being heard.

At this point I should say that the allegations which Fairfax makes in this case against the banks are based, largely, if not entirely, on the matters which are alleged by INP and other applicants in their claim against the respondents to whom I have referred.  That is made clear, firstly by the use of the words "to the extent it be found to have occurred" in para 16 of the defence and by a comparison of the allegations made in para 16 of the defence with the allegations made in para 56 of the INP statement of claim.
     After setting out the various representations and other matters upon which it relies, Fairfax alleges that the applicants, that is Citisecurities and the banks or to their knowledge Mr Burrows and/or Barings and/or the receivers, engaged in conduct or otherwise acted in such a way as to demonstrate that the representations and other matters relied upon were false to the knowledge of the applicants.  Thus para 16 of the defence alleges that the applicants or, to their knowledge, the receivers, Barings and/or Mr Burrows represented to INP that the bondholder litigation would not be a factor in their decision-making process.  This is falsified by an allegation which says that the applicants regarded the absence of any agreement between INP and the bondholders as a factor adverse to the INP bid and regarded a deed known as an "Exclusivity Deed" as a significant factor favouring the Tourang (i.e. the Fairfax) bid.  Para 16 also alleges a representation that an agreement with the bondholders would not be necessary to a successful bid.  It is alleged that the applicants regarded as a significant factor in favour of the Tourang bid that the Exclusivity Deed provided for a release of the applicants in respect of certain litigation brought by a number of bondholders against them.

It should be mentioned here that certain bondholders resident in the United States of America (described as junk bondholders in the evidence) had brought actions against the then Fairfax companies and against the banks alleging misrepresentation which induced them to advance moneys to the then Fairfax companies.  That litigation was pending at the time the sale agreement was entered into.

Para 16 of the defence also alleges a number of other representations made by the applicants or by others with their knowledge.  These representations are representations made in the third set of proceedings which is being heard (No. 153 of 1994) by a company, Australian Independent Newspapers Limited ("AIN").  The representations are those contained in the AIN amended statement of claim.  Again para 16 of the defence alleges matters which would tend to falsify the representations which are relied upon.  Again the representations were not representations made to the Fairfax companies.  They were made to others.

The gravamen of the INP and AIN cases is that the process provided for by the receivers and their adviser, Mr Burrows, was carried out dishonestly.  It is alleged that it led to what was described in one of the openings as a "rigged auction".  It may be right, as has been said from time to time during the proceedings, that it is wrong to call the process an auction.  Nevertheless, the substance of the allegation is that AIN and INP were kept in the negotiations on a false basis.  If they had known the truth they would have taken steps different from those which in fact they took.  This may have led to the receipt by the receivers of a price from Tourang much lower than would otherwise have been obtained or
may, after all, have resulted in success for AIN or INP rather than for Tourang.

Of course it is possible for there to be a case brought under s.52 of the Trade Practices Act 1974 which does not involve any question of fraud. It would seem to me that such a case could be made and relied upon by INP and AIN here. It may be that statements were made which amount to representations which were false, but were, nevertheless, made honestly. If that be the case and damage resulted, there would still be liability. It is not, however, that case which has been highlighted in these proceedings. On the other hand, neither in the INP case nor the AIN case is there any allegation of fraud. But, put in the way that the matter was put in opening and the way in which the case has been conducted, it would seem that the case could equally have been brought as a case of fraudulent misrepresentation as well as a case of misrepresentation under s.52 of the Trade Practices Act.

Paragraph 17 of the amended statement of claim pleads that it was a term of the agreement (Clause 7.3 thereof) that Tourang (i.e. Fairfax) would indemnify each of the applicants against all liabilities and loss and all costs and expenses including legal costs and expenses arising from or incurred in respect of or in connection with any liability or obligation of Fairfax or any subsidiary thereof arising out of any matter occurring before completion of the Fairfax sale agreement.  By para 17 of their defence the Fairfax companies say that the indemnity provided for in Clause 7.3 does not extend to liability, loss, costs or expenses arising out of or in relation to fraud, gross negligence or wilful misconduct or any unlawful conduct of the applicants or their agents.  The defence then repeats, mutatis mutandis, with respect to Clause 7.3 of the agreement, the subparagraphs of para 16 earlier referred to.

Paragraph 24 of the amended statement of claim pleads that, by reason of the indemnities referred to in paras 16 and 17, the applicants are entitled to be indemnified by Fairfax (i.e. Tourang) against any liability and loss which the applicants may have to the receivers and Barings and against any liability for the costs of the proceedings and any proceedings brought by Tourang against the applicants or any of them.  Paragraph 24 of the defence denies para 24 of the statement of claim.  Amongst other things it also pleads that the claims made by the applicants arise out of or relate to conduct which, if established, would constitute fraud, gross negligence or wilful misconduct within the meaning of Clauses 8 and 7 respectively of the agreement.  The paragraph adds that the Fairfax companies refer to the matters which are the subject of the "Further Amended Cross-Claim".

The further amended cross-claim to which reference is made may now be taken to refer to the second further amended cross-claim filed by the respondents in the proceedings brought by the applicants.  Paragraphs 13 and 14 of the second further amended cross-claim plead that, on 16 December 1991, the first applicant, Fairfax, the receivers and certain other parties entered into the agreement in which Tourang gave certain indemnities in favour of the first applicant and other persons including the receivers and Barings.  The Fairfax companies say that the banks and/or Barings and/or Mr Burrows and/or the receivers or their agents engaged in the conduct referred to in para 16 of the amended defence to which reference has been made.  Paragraph 14A of the second further amended cross-claim pleads that during the bidding process the banks, the receivers, Barings and Mr Burrows held out and represented to Tourang that the bidding process would be and was conducted by them honestly, regularly and in good faith; that both INP and AIN had, as part of that process, made genuine bids for Fairfax either or both of which bids were, notwithstanding the existence of the exclusivity agreement with the bondholders, considered by them to be more favourable than Tourang's bids of 15 October 1991 and 31 October 1991; that the bids which had been received from INP and AIN had not been procured or influenced by any conduct on the part of the banks, the receivers, Barings or Burrows which was dishonest, irregular or otherwise than in good faith; and they were, notwithstanding the existence of the exclusivity agreement with the bondholders, giving genuine and serious consideration to the acceptance of a bid from INP or AIN in preference to Tourang's bids made in October 1991 and also in December 1991.
Particulars of the representations are given.  It is unnecessary to refer to these.

Paragraph 14B pleads that the bidding process was not conducted by the applicants honestly, regularly and in good faith.  Particulars say that the banks and/or the receivers and/or Barings and/or Burrows or their agents engaged in the conduct referred to in para 16 of the amended defence.  They also say that, whilst INP and AIN had in fact made bids, such bids had been procured or influenced by conduct on the part of the banks, the receivers, Barings and Burrows which was dishonest, irregular or otherwise than in good faith and the bids received from INP and AIN were in fact not considered by them to be more favourable than Tourang's bids of October.  Particulars also say that as from 31 October 1991, the applicants did not intend to accept a bid from either INP or AIN in preference to that of Tourang unless Tourang's bid was not capable of acceptance in accordance with its tenor within a reasonable period of time. 

Paragraph 19 of the cross-claim pleads that, "in consequence of the foregoing conduct", AIN and INP continued in the bidding process.  Paragraph 20 pleads that, in consequence of the conduct of, amongst others, the applicants referred to in paras 14A and 14B, the first cross-claimant has suffered loss and damage which is then particularised.

There are other allegations in the second further amended cross-claim which I do not need to refer to.  The question is whether it is sufficient particularisation of the allegations made in para 24(b) of the defence to the proceedings brought by the applicants simply to say that the cross-claimants refer to the matters which are the subject of the further amended cross-claim i.e., now, the second further amended cross-claim.

Paragraphs 27, 28, 29, 30 and 31 of the statement of claim plead a cause of action based on the provisions of Clause 11.10 of the agreement to which I have earlier referred.  Paragraphs 27(c) and 28(c) of the defence each rely upon the exclusion in Clause 11.10 of the agreement of conduct constituting fraud.  At the end of para 28 of the defence the Fairfax companies "repeat, mutatis mutandis, with respect to Clause 11.10(b) of the sale agreement" the allegations made in paras 16(c) to (q) of the defence.

The particulars which the applicants' seek are specified in a letter dated 27 February 1995 from the applicants' then solicitors to the Fairfax companies' solicitors.  The letter is a long one and I do not set it out.  I have appended it as an attachment to this judgment.  The letter of 27 February 1995 was answered by a letter dated 1 March 1995 written by the Fairfax companies' solicitors to the applicants' then solicitors.  Amongst other things the letter said that the indemnities sued upon had exclusions for fraud, wilful misconduct and gross negligence.  The letter further said that the applicants' conduct fell into those exclusions.  This had been pleaded in the original defence and each amended defence thereafter.  Reference was made to para 24(a), para 27(c) and para 28(c) of the amended defence.  The letter also said that the factual matters constituting the applicants' involvement had been pleaded with particularity.  Reference was made to para 16 of the amended defence.  It should be mentioned that further particulars of para 16 of the defence were furnished in a document filed on 6 October 1994.

There is some further correspondence in evidence to which I have not referred.  In the circumstances, I do not find it necessary to do so.

The motion does not seek further particulars of paras 16 or 17 of the defence.  The paragraphs which are in question are paras 24, 27 and 28.

In the course of his submissions, counsel for the applicants strongly emphasised the gravamen of the allegations made against his clients.  He was right to do so; obviously they are of a most serious kind.  He referred to rules 2 and 3 of Order 12 of the Court's Rules which oblige a party making an allegation of fraud to particularise it fully and also to give particulars relating to the state of mind of the person against whom the allegation is made.  These rules are important because they emphasise the fact that the making of an allegation of fraud is a serious affair and requires full particularisation.  Rules making provisions similar to those made in rules 2 and 3 of Order 12 have conventionally been included in the rules of many courts for a long time.  They precede the days when there was a view that particulars of allegations made in pleadings would not be required to be provided.  In a more modern age, however, the distinction between cases involving allegations of fraud and other allegations has become blurred because it is now the practice to order particulars of all allegations not fully or properly particularised in pleadings.  The aim is to ensure that no party to litigation is taken by surprise.  That is particularly so in a case such as this which has been the subject of substantial court management and control since its inception.  The Court has gone to great lengths in the making of the directions which it has made over a long period now to ensure that each party to the litigation understands the allegations made against him or it.

It is true that there is no cause of action for fraud relied upon in the cases brought by INP and AIN and that it is upon the allegations made in those cases that the respondents here will rely to found their case in fraud.  But I would not myself draw any distinction between a case in which such a cause of action was pleaded and a case where, although no such cause of action was pleaded, it either became necessary for a party to allege fraud - the respondents do that here by relying on the terms of the indemnity - or because the substance of what was alleged was dishonest or fraudulent conduct even though no cause of action in fraud was relied upon.  That is also the case here because the respondents rely on the allegations made by INP and AIN which do not mention fraud or dishonesty.  That is, of course, subject to what I have earlier said about the effect of the opening of the INP and AIN cases by their counsel. 

As counsel for the Fairfax companies emphasised, the Fairfax companies labour under one difficulty.  The evidence upon which they seek to rely is not, for the most part, to be led from witnesses called by them nor is it to be found in documents to be tendered by them.  They rely on the cases being made by INP and AIN in matters No. 154 and 153 of 1994.  Their cases depend entirely upon the evidence to be led by those parties.  Of course, if the AIN and INP cases fail, there will not, in all probability, subject to certain things said during the course of the argument by counsel for the Fairfax companies, be any occasion warranting pursuit of the banks for moneys which the Fairfax companies seek to recover from them in their cross-claim against them.  The conduct alleged by INP and AIN will not have been found so that the foundation for the Fairfax companies' claim against the banks will go.  In short, the Fairfax companies' allegation against the banks and other parties is that, because of the conduct alleged by INP and AIN, Tourang (now Fairfax), was led into a situation in which it paid substantially more for the then Fairfax companies than it would otherwise have done.

The application for particulars as now made needs to be understood in the context of the case as a whole.  It needs to be understood in the light of the fact that the litigation is presently being heard and that evidence is being led to support the allegations made by INP and AIN.  And it needs to be understood in the light of the fact that the allegations upon which the Fairfax companies will rely will be based on evidence led not in the Fairfax cases but in the cases brought by INP and AIN.

There is also the fact that, although the litigation is proceeding, there are outstanding questions between the parties in relation both to discovery and answers to interrogatories.  It is unlikely that these matters will be entirely resolved for a little time.

The attitude which the Fairfax companies take is that they have provided the best particulars which they can provide at this stage.  It is noteworthy in this respect that the particulars which are sought in the letter of 27 February 1995 do not seek further particulars either of para 16 or of para 17 of the defence in which allegations of fraud are made.  In the light of the fact that the allegations of fraud in paras 27 and 28 are said to be based upon the provisions of the various subparagraphs of para 16 of the defence, it seems difficult to understand what the complaint of the applicants is.  The respondents are bound by the particulars.  They are clear and specific.  The respondents will not be permitted to rely on matters outside those particulars at least in the absence of an amendment which will only be granted by consent or by leave of the Court.

Two particular matters were mentioned.  One concerned the applicants' state of mind.  Reference was made to the requirements of Order 12, rule 3.  The other was based on there being not one applicant but several.  It was said that the particulars should be specific in relation to each applicant and not general in the sense of embracing them all collectively.  It was said that it was possible (the possibility was of course denied) that one or some, but not all, of the applicants may have been guilty of fraud but others may not.  This could be the case if officers of one or some of the banks had engaged in particular conduct whilst officers from other banks had not.

Of course that is all true.  But the allegations made in para 16 of the defence are prefaced by the words, "...they [the applicants] alternatively to their knowledge the Receivers, Barings and/or Burrows have represented to..." Furthermore para 6 of the statement of claim pleads a deed dated 22 December 1988 whereby Fairfax granted to Citisecurities "on its own behalf and as agent for the Financiers" a fixed and floating equitable charge over its rights, property and undertaking including its called and uncalled capital.

By para 8 of the statement of claim it is alleged that Citisecurities appointed the receivers.  They were not appointed by the banks, but by their agent.  Accordingly, it is the respondents' case that Citisecurities was the agent for all the banks.  Furthermore, there will be questions concerning whether the receivers were, for any purpose, the agents of the banks and whether Barings or Mr Burrows were the agents of the receivers or of the banks.  And there will be a question, no doubt, particularly in relation to the case based on fraud, whether these relationships of principal and agent, if they existed, involved any of the principals being liable vicariously for any fraudulent conduct of the agents.  These issues will give rise to mixed questions of fact and law and are not likely to be easy of resolution.

This is not a case where the evidence to be relied upon by each party is not known to each of the others.  Each party has been required to file affidavits so that the cases of all the parties are on the table.  Furthermore, there is already evidence (it may or may not eventually be accepted) that at one meeting attended by numbers of representatives of the banks at least one statement was made by a bank officer about the banks' then view of the litigation involving the bondholders.  And there has been reference at times to documents which, if tendered and are found to contain material of the kind which it is suggested they do, could provide evidence which might tend to falsify the statement made at the meeting.  I do not wish to say any more of the matter at this stage.  I have said enough to indicate that, in all the circumstances, the respondents have provided sufficient particulars in para 16 of their defence to indicate the way they propose to endeavour to prove their case.  Precisely the same matters are relied upon in support of paras 27 and 28 and to a degree, para 24.

I next need to consider whether the requirement to provide particulars of the banks' states of mind has been complied with.  States of mind are never easy to particularise.  The problem is exacerbated when the parties in question are companies.  That is because a particular state of mind is unlikely to be the subject of direct evidence.  Rather a court is asked to infer the requisite state of mind from the surrounding circumstances and the objective facts which it finds established.  Here it is clear that the respondents allege dishonesty on the part of the banks.  That is their case.  In order to particularise the dishonest state of mind upon which they rely, the respondents have pleaded the various facts and circumstances alleged in para 16 and the particulars thereto.  In due course I will be asked to infer from those matters, if they be established, the dishonest state of mind upon which the respondents rely.  Accordingly, I do not regard this case as one requiring any further particularisation of the applicants' state of mind.  The way the case is put against them in this respect is quite clear.

For the above reasons, I reached the conclusion that no further particularisation of paras 27 and 28 was warranted.  I have a different view in relation to para 24.  As I remarked during the argument, it seems to me that para 24(b) of the defence is not a sufficient particularisation of the allegations of fraud which are made in that paragraph.  I think it is going too far simply to make a general reference to the further (now the second) amended cross-claim.  I think that the matter, although it may not involve more than a reference to paragraphs such as are contained in para 16 of the defence, needs to be specified precisely.  To that extent I think the motion succeeds and an order should be made for further particulars to be provided of para 24(b) of the defence.

In summary then I concluded that I should order the respondents to provide further particulars of para 24(b) of their defence but that otherwise the notice of motion should be dismissed.  I think that the appropriate order for costs is that the costs be costs in the principal proceeding.

I certify that this and the 19 preceding pages are a true copy of the reasons for judgment herein of the Honourable Justice Sheppard.

Associate

Dated