Commco Super Pty Ltd v Fardoe
[2020] WASC 403
•10 NOVEMBER 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: COMMCO SUPER PTY LTD -v- FARDOE [2020] WASC 403
CORAM: MASTER SANDERSON
HEARD: 21 SEPTEMBER 2020
DELIVERED : 21 SEPTEMBER 2020
PUBLISHED : 10 NOVEMBER 2020
FILE NO/S: CIV 1343 of 2020
BETWEEN: COMMCO SUPER PTY LTD
Plaintiff
AND
ALAN WILLIAM FARDOE
JACQUELINE MARY FARDOE
Defendants
ALAN WILLIAM FARDOE
JACQUELINE MARY FARDOE
Plaintiff by Counterclaim
AND
COMMCO SUPER PTY LTD
Defendant by counterclaim
Catchwords:
Practice and procedure - Application for summary judgment on counterclaim - Application for security for costs - Turns on own facts
Legislation:
Corporations Act 2001 (Cth)
Rules of the Supreme Court 1971 (WA)
Result:
Applications dismissed
Category: B
Representation:
Original Action
Counsel:
| Plaintiff | : | A J Aristei |
| Defendants | : | I Neil SC |
Solicitors:
| Plaintiff | : | Solomon Hollett Lawyers |
| Defendants | : | Clayton Utz |
Counterclaim
Counsel:
| Plaintiff by Counterclaim | : | I Neil SC |
| Defendant by counterclaim | : | A J Aristei |
Solicitors:
| Plaintiff by Counterclaim | : | Clayton Utz |
| Defendant by counterclaim | : | Solomon Hollett Lawyers |
Case(s) referred to in decision(s):
Eaves v Hickson [1861] LR 9 Ch App 244
MASTER SANDERSON:
This is another instalment of litigation involving what is generally known as the Sterling First Group. By chamber summons filed 24 July 2020 the plaintiffs sought summary judgment against the defendants on their counterclaim, in the alternative, an order striking out parts of the defendants' counterclaim and an order for security for costs in relation to the counterclaim. A plethora of affidavits were filed in support of and in opposition to the applications. The plaintiffs filed written submissions, the defendants filed written submissions and the plaintiffs filed written submissions in reply. After hearing argument, I ordered all three applications be dismissed. I said I would provide reasons for my decision. These are those reasons.
The plaintiffs' claim is effectively a mortgagee action. The plaintiffs plead that Acquest Property Pty Ltd (Acquest) and Sterling Corporate Services Pty Ltd (Sterling) are registered proprietors of certain residential property.[1] They plead the two companies entered into residential tenancy agreements with the named defendants.[2] Acquest and Sterling then mortgaged the subject properties to the plaintiffs.[3] No payments were made under the mortgages, demands were issued and not met and the plaintiffs say they are entitled to take possession of the properties. The plaintiffs want the defendants to vacate the subject properties so the properties can be sold and the plaintiffs can recover the money they lent to Acquest and Sterling. Sterling is in liquidation.[4] Acquest assigned its proprietary interests in the properties to Sterling. Nothing will be recovered by the plaintiffs in the liquidation of Sterling. Their only recourse is to sell the properties and recover the money they loaned.
[1] Consolidated writ of summons indorsed with statement of claim filed 24 April 2020 [1] ‑ [4].
[2] Consolidated writ of summons indorsed with statement of claim filed 24 April 2020 [6] ‑ [9].
[3] Consolidated writ of summons indorsed with statement of claim filed 24 April 2020 [16].
[4] Consolidated writ of summons indorsed with statement of claim filed 24 April 2020 [12].
For their part, the defendants put their defence ‑ in broad terms ‑ in this way. They were told by Sterling that if they made a capital payment to Sterling, that money would be invested and the return would be used to meet any costs, including mortgage costs, in relation to the property. The defendants were told they could occupy the property without cost for a period of 40 years. The majority, if not all, of the defendants appear to be elderly retirees of limited means. If the plaintiffs are successful in their action, not only will the defendants loose the investment they made with Sterling, they will be effectively homeless.
A defence and counterclaim was filed on 29 May 2020. The defendants admit Sterling owns the properties and mortgaged them to the plaintiffs. In par 1 of the defence, the defendants plead in some detail their dealings with Sterling. They accept the plaintiffs are mortgagees of the subject property. They plead the tenancy agreements. They admit receiving notices to quit and they admit they are still in residence in the various properties. The gravamen of the defence and the real issue between the parties is found in pars 20 to 23 of the defence. These paragraphs read as follows:
20.Further to the foregoing, the Defendants say that both Acquest and Sterling owed fiduciary duties to each of the Defendants referred to in paragraph 11(c) herein to protect (alternatively, not to sacrifice) the Defendants' interests when exercising the power which each held to deal with the properties by reason of the following premises:
(a)the relationship between Acquest and Sterling respectively and each of the relevant Defendants respectively was created in circumstances that were characterised by an inequality of bargaining power;
(b)each of Acquest and Sterling was vested with power to deal with the Acquest and Sterling properties including by the granting security interests over the properties to secure the repayment of sums of money;
(c)the exercise of the power to deal with the Acquest and Sterling properties by Acquest and Sterling could adversely affect the leasehold interests of each of the Defendants;
(d)the relationship between Acquest and Sterling and each of the relevant Defendants respectively was one which gave Acquest and Sterling a special opportunity to exercise the power to deal with the Acquest and Sterling properties to the detriment of the Defendants;
(e)the Defendants were unable to register their RTAs or lodge a caveat to protect the leasehold interests arising thereunder and were accordingly unable to protect their own leasehold interests by registration;
(f)the Defendants were accordingly dependent on Acquest and Sterling and vulnerable to abuse of the position occupied by each of Acquest and Sterling;
(g)assurances were given to the Defendants by representatives of Sterling Group with the authority or approval of Acquest and Sterling that the Defendants' leasehold interests arising under the RTAs would not be affected by any dealings with the Acquest and Sterling properties;
(h)each of the Acquest and Sterling thereby undertook to and assumed a responsibility to preserve and protect the interests of the Defendants when exercising the power to deal with the Acquest and Sterling properties; and
(i)in the premises, Acquest and Sterling owed fiduciary duties to each of the Defendants to act in their interests when exercising the power to deal with the Acquest and Sterling properties.
21.In reliance on the assurances provided to them as to the security of their leasehold tenure, each of the Defendants referred to in paragraph 11(c) herein has made the one off lump sum payments of money referred to in paragraph 6 herein.
22.At all materials times prior to the execution and registration of the Mortgages, the Plaintiff knew (or ought to have known) that:
(a)each of the Defendants referred to in paragraph 11(c) herein had made a one-off lump sum payment to secure what was effectively a life tenancy of each of the Acquest and Sterling properties as particularised in the Schedule hereto;
(b)none of the SNLLs to which the Defendants referred to in paragraph 11(c) herein were a party had been registered against the title of the relevant property; and
(c)execution and registration of the Mortgages would prejudice the interests of the Defendants referred to in paragraph 11(c) herein in respect of their leasehold interests in each of the relevant properties unless steps were taken to preserve or protecting those interests.
23.Each of the Mortgages formed part of a course of dealings between the Plaintiff and Acquest and Sterling in which each of Acquest and Sterling had a personal interest (as borrower) conflicting with that of each of the Defendants.
The prayer for relief which appears at the conclusion of the defence is in the following terms:
(1)A declaration that the whole of the Plaintiff's title to and interest in each of the Acquest and Sterling properties is held subject to the leasehold interests of the Defendants.
(2)Further or alternatively, a declaration that the Plaintiff holds its title to and interest in each of the Acquest and Sterling properties on constructive trust for the benefit of each of the Defendants.
(3)A declaration that the Plaintiff is bound by the prepayment of rent and outgoings made by each of the Defendants.
(4)An order to restrain the Plaintiff by itself, its officers, servants, agents or otherwise howsoever from asserting that it is lawfully entitled to possession of the Acquest and Sterling properties to the exclusion of the Defendants.
(5)Such further or other relief as to this Honourable Court may seem just.
(6)Costs.
A reading of the relevant paragraphs of the defence makes it plain that this is not a case where the plaintiffs seek to strike out on the basis that the pleading is unintelligible. Rather, it is an allegation the paragraphs do not disclose a cause of action. Perhaps surprisingly the chamber summons anticipated that if the paragraphs in question were struck out, leave should be given to re‑plead. But really these paragraphs contain everything the plaintiffs need to know about the defence; put another way, there is nothing more, it would seem, in the available evidence which would advance the defendants' case or allow it to be differently pleaded. In that sense, there is considerable overlap between the application for summary judgment and the application to strike out.
The counterclaim is what is sometimes referred to as a 'knowing inducement liability'. The principles were set out in Eaves v Hickson [1861] LR 9 Ch App 244. In this case it is necessary for the defendants to establish first, the existence of a fiduciary duty owed by the fiduciary, in this case Acquest and/or Sterling. Second, a breach of the fiduciary duty on the part of the fiduciary. Third, conduct which induced or procured that breach. And fourth, knowledge of the facts and matters that would lead an honest and reasonable person to conclude that a breach of fiduciary duty was occurring.
All the elements of this cause of action are pleaded. Whether or not the facts that are pleaded in par 20 of the defence are sufficient to establish a fiduciary relationship is a question of fact for trial. This is clearly not one of those relationships, such as the relationship between solicitor and client, where the fact of the relationship leads to the conclusion it is fiduciary in nature. But it cannot be said, as the plaintiffs attempted to say in this application, that the pleaded facts could never give rise to a fiduciary relationship. For a summary judgment application that is a bridge too far.
Without going into detail, I am satisfied that the pleading in its present form also sets out material facts which could, if proved, lead to the conclusion for which the defendants contend. That is enough to defeat the summary judgment application and it is enough to warrant the application to strike out being dismissed.
Turning then to the application for security for costs, in each case the application is brought under O 25 of the Rules of the Supreme Court 1971 (WA) (RSC). The affidavit evidence filed by the defendants make it plain they are impecunious. But under O 25 r 1 of the RSC, mere impecuniosity (or poverty as the order puts it) is not sufficient to ground an order. None of the defendants fit within the categories found in O 25 r 1(2) of the RSC. That means there must be some discretionary consideration which requires making of the order under O 25 r 3 of the RSC.
The plaintiffs' application seemed really to be based on the weakness of the defendants' argument. While I would accept the defence and counterclaim raise complex issues, that is not sufficient to warrant an order for security. During the course of his oral submissions counsel for the plaintiffs made a number of references to s 1335 of the Corporations Act 2001 (Cth) and attempted to transpose the principles applicable to that section to this application. With respect, there is a world of difference between an application brought under the RSC and an application brought under the Corporations Act. True it is that once an applicant has established a corporation may not be able to meet a costs order there are discretionary considerations which, to an extent, overlap with the discretionary considerations in O 25 of the RSC. The strength of the defendants' case, for instance, is common to both matters. But largely they are independent of one another. The main difference, of course, is that s 1335 of the Corporations Act only operates if the evidence establishes the corporation will not be able to meet the costs order. That is to say, once it is established the corporation is impecunious. That is not a consideration under O 25 of the RSC ‑ it is specifically excluded.
In my view, there were no discretionary considerations in this case which would justify the making of a security for costs order as sought by the plaintiffs.
I will dismiss all aspects of the chamber summons. The parties ought confer as to the form of orders as to costs. If agreement cannot be reached parties should file short written submissions as to costs. Such submissions are to be filed within seven (7) days of publication of these reasons.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CB
Associate to Master Sanderson10 NOVEMBER 2020
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