DAVIES v Chicago Boot Company Pty Ltd (No 3)
[2007] SASC 399
•14 November 2007
SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
DAVIES & ANOR v CHICAGO BOOT COMPANY PTY LTD (NO 3)
[2007] SASC 399
Reasons of Judge Lunn a Master of the Supreme Court
14 November 2007
PROCEDURE
Application for leave to file a fresh statement of claim - evidence allowable on such an application - degree of particularity required held governed by significant prejudice to the other party if it was not ordered - inconsistent pleadings - rolled up pleadings of causes of action which were mutually exclusive.
DAVIES & ANOR v CHICAGO BOOT COMPANY PTY LTD (NO 3)
[2007] SASC 399Reasons on plaintiffs’ application to file a further statement of claim.
JUDGE LUNN: This matter already has a long and complicated history, but it is not necessary to canvass it for the purpose of this application. The plaintiffs are the liquidators of each of Harris Scarfe Limited (“HSL”) and Harris Scarfe Wholesale Pty Ltd (“HSW”). In these consolidated actions the plaintiffs seek to recover under Part 5.7B of the Corporations Law (“the Law”) alleged preferential payments made to the defendant by HSL or HSW.
By a notice for specific directions issued on 13 July 2007 the plaintiffs seek leave to file a second further amended statement of claim (“the SOC”) in a form exhibited to an affidavit of their solicitor (FDN 88B). This was opposed by the defendant.
All parties have filed a substantial amount of affidavit evidence which is of marginal relevance. This is a pleadings dispute and not an application for summary judgment by the defendant. Primarily it is to be dealt with on the face of the SOC: Solowij v Parish of St Michael, Burley M, [2001] SASC 256. If an arguable case is made out on the pleading its resolution should be left to the trial: Woodhead Australia Pty Ltd v The Paspalis Group of Companies (1991) 103 FLR 122, or for a summary judgment application under R 25.04.
Whether the plaintiffs are pleading a “transaction” for the purpose of s 588FF of the Law.
Paragraphs 9.9 and 21 and 23 of the SOC plead:
9.9The intention of both HSL and HSW (which intention was formed before 1 July 2000, the specific date of which is not known to the plaintiffs) was that after 1 July 2000 stock obtained from suppliers for sale in the Harris Scarfe business would be purchased by HSL and not HSW.
…..
Payment with HSW cheque of HSL Debt
21In addition to paragraphs 19 and 20, and in the alternative to paragraph 22 of this pleading, if the defendant provided the HSW stock (as defined in paragraph 22 of this pleading) to HSL pursuant to the HSL Contract, then the HSW Transaction was made in error, it being the intention of HSL and HSW (in this instance) that HSL would pay the debt itself and;
21.1For the reason that HSL’s debt to the defendant was being discharged by HSW, HSL did not make payment of the debt itself,
21.2HSL and HSW regarded HSW’s payments to the defendant as creating an indebtedness in the same amount by HSL to HSW.
…..
Payment with HSL Cheques of HSW Debt
23In addition to paragraph 22 of this pleading, if the defendant provided the HSL Stock to HSW pursuant to the HSW Contract then it was the practice, convention and intention of HSL and HSW in respect of the period from 1 July 2000, for HSL to make payments (“the HSL Payments”) to suppliers to extinguish debts owed to suppliers by HSW.
23.1For the reason that HSW’s debt to the defendant was being discharged by HSL, HSW did not make payment of the debt itself;
23.2HSL and HSW regarded HSL’s payments to the defendant as being in reduction (in the same amount) of the indebtedness of HSL to HSW then existing, or alternatively, the payment made by HSL created an indebtedness in the same amount by HSW to HSL.
The plaintiffs contend on the authority of re Emanuel (No 14) Pty Ltd, Macks v Blacklaw & Shadforth Pty Ltd (1997) 24 ACSR 292 (“Blacklaw’s case”) that a transaction extinguishing a debt for the purpose of s 588FF of the Law can be comprised of a totality of dealings involving entities other than the debtor company and the creditor. The defendant contends that what is pleaded in these three paragraphs is outside what was held to be a “transaction” for the purposes of the Law in Blacklaw’s case. In that case the Full Court of the Federal Court said at 299-300:
The general reason is that we do not see the language of s 9 (which exemplifies but does not define “transaction”) as precluding a finding of a transaction to which the debtor A is a party merely because that transaction itself is made up of a composite of dealings in not all of which A participates.
It is not necessary for the purpose of this appeal to determine in any exhaustive fashion when a composite of dealings can together be said to constitute a s 9 transaction notwithstanding that not all of its component parts considered in isolation could rightly be said individually to be transactions.
…..
We confine our observations for present purposes simply to a course of dealing initiated by a debtor for the purpose of, and having the effect of, extinguishing a debt. It is not apparent to us why it should not be said that, where a debtor so acts and extinguishes a debt, the relevant “transaction” is the totality of the dealings through which the debtor procures the intended outcome, irrespective of whether one or more of the dealings in the sequence in question does not involve or require the participation of the debtor but does require that of a third party. The transaction, in other words, is the totality of the dealings initiated by the debtor so as to achieve the intended purpose of extinguishing the debt.
…..
We conclude, then, that a course of dealing initiated by a debtor that is intended to, and does, extinguish a creditor’s debt can in its totality be a transaction for the purposes of Pt 5.7B of the Corporations Law notwithstanding that the achievement of that end can only be realised through the participation of a third party in a particular dealing (or dealings) within the overall transaction, being a particular dealing (or dealings) to which the debtor is not or may not be a party. (Underlining added).
Paragraphs 21 and 22 of the SOC do not plead a transaction, as defined in Blacklaw’s case, because the course of dealings is not pleaded as being initiated by the debtor company. However, as is clear from the underlined portions of the quotation from Blacklaw’s case, the Federal Court was not laying down an exhaustive definition of what could constitute a “transaction”. The attempt here by the plaintiffs to expand the scope of “transactions” for the purpose of ss 9 and 588FF of the Act is outside of, but it is not contrary to, Blacklaw’s case. Hence paragraphs 21 and 23 are permissible pleadings. However, I do not accept that paragraph 9.9 is a proper pleading. The plaintiffs’ counsel sought to justify it as part of the pleading of a transaction for the purposes of s 588FE of the Law. Those are the transactions which effect an extinguishment of a debt owed by the subject company: paragraph 9.9 deals with the unrelated transaction which created the debt.
Lack of sufficient particularity.
The defendant objected to paragraphs 10-12, 16, 19, 20, 22 and 28.3 of the SOC on the ground that insufficient material facts had been pleaded for them. The defendant’s written outline of argument, in the context of pleading of sufficient particularity, stated:
33The adequacy or otherwise of pleadings ought generally be addressed at the interlocutory stage rather than at trial.
In the course of argument the defendant’s counsel agreed that this was an overstatement. It is necessary to address the question of law about the extent of the particularity which is required before leave will be given to file an amended pleading.
R 46A.03(a) and (b) of the Supreme Court Rules 1987 requires a plaintiff to plead in its statement of claim:
(a)the material facts relied upon to constitute any cause of action.
(b) such further material facts as are necessary to give other parties fair notice of the case which they will have to answer.
The pleadings under (b) are generally referred to as particulars. Here the argument is confined to such particulars.
R 46A.09(1) and (2) of those Rules provides that for the purposes of allowing leave to amend only such particularity is required in the new pleading as would be ordered under R46A.09(1): Schrader v ABC, Lunn M, 23 July 2007, Judgment No [2007] SASC 270.
In H Stanke & Sons Pty Ltd v O’Meara, 4 July 2007, Judgment No [1007] SASC 246 (“Stanke’s case”) the Full Court said, at [85]:
It is true that R 46A.09(1) and R 46A.10 do contemplate orders by a trial Judge which may have the effect of a sanction in the event of an inadequate pleading. Further, as already noted, it is an evident purpose of R 46A to reduce the amount of interlocutory disputes about pleadings. However, we are unable to find support in R 46A for the Master’s conclusion that disputes about the sufficiency of a pleading are primarily to be dealt with by the trial Judge. On the contrary, in many cases, it will be important for such disputes to be dealt with at the interlocutory level. The parties’ obligations with respect to discovery provide an example. Rule 58A.03 requires parties to discover those documents in their possession, custody or power which are directly relevant to “any issue arising on the pleadings”. It is the pleadings which determine the ambit of the parties’ discovery obligations. Ordinarily, the discovery process, including any dispute about the adequacy of the discovery provided, should be completed well before the commencement of a trial. Deferring disputes about the sufficiency of a pleading to trial could have a major impact upon the discharge by the parties of their discovery obligations, and accordingly on their very preparation for trial. An insufficiency of a pleading may also serve to deny a party proper notice of the case of the other. In this respect the following passage from the judgment of Burchett J in Multigroup Distribution Services Pty Ltd v TNT Aust Pty Ltd is apposite:
“Before I turn to the argument, it is convenient to refer to some of the functions of a Statement of Claim. The primary function is to tell the defending party what the claim is that he has to meet. That is a matter of elementary and natural justice; the claim cannot be answered until it is known. When a sufficient defence has been filed to a sufficient statement of claim, a further function will generally have been performed – that of defining the question or questions for decision. This definition is required, or course from an early stage, or else discovery and other interlocutory procedures are likely to prove misdirected, wasteful and unproductive. In order to achieve these fundamentals, a statement of claim must set out clearly, not just the bare claim that is made, but also “the material facts on which it is based”, including facts that, if not specifically pleaded, might take the other party by surprise. [Emphasis added].”
While Stanke’s case scotches my previous heresy that issues of the sufficiency of the particulars are “primarily for the trial Judge” it does not explicitly lay down definite criteria about the degree of insufficiency of particularity which will cause the Court to act on an interlocutory basis as distinct from what might be done by the trial Judge. Clearly, R 46A.09(1) has changed the old position that the Court would adjudicate exhaustively on interlocutory applications on the degree of particularity required and has left some insufficiency of particularity to be dealt with by the trial Judge under R 46A.10. The determinative criterion under R 46A.09(1) is that the party seeking the further particularity has to show that it “would be significantly prejudiced in the conduct of its case by not having them”. I consider that what the Full Court was saying in the quoted passage from Stanke’s case was that this significant prejudice could arise not merely in conduct of the case at trial, but also in the interlocutory processes prior to trial such as discovery of documents. (R46A.09(1) refers to “conduct of its case” and not merely the conduct of the trial). Therefore, where a party complains that it will be significantly prejudiced in obtaining or giving discovery, or in other interlocutory processes, because of a lack of particularity that can be a basis for more particularity being required from the opposing party at an interlocutory stage.
“Significant prejudice” for the purpose of R 46A.09(1) can be established either by evidence or by proper inferences which the Court is prepared to draw about prejudice from the evidence which is properly before it on the interlocutory application: Stanke’s case at [92]. Here the defendant did not put forward evidence which disclosed actual prejudice but rather sought that the Court infer from the face of the SOC and other background evidence that it would suffer significant prejudice if further particularity was not required from the plaintiffs.
R 46A.09(1) requires the establishment of significant prejudice, and not merely of ordinary prejudice. This is a question of degree but it means that further particularity will not be ordered at an interlocutory stage unless it is required in the interests of justice. As is recognised by the rider to R 46A.09(1), the primary obligation of plaintiffs is to plead all the material facts and if they do not do so they are to take any adverse consequences of their default in the evidence which they will be allowed to present at trial. Subject to significant prejudice to other parties, it is not for the Court to tell parties how they should plead or present their cases at trial: Morgan v Roberts, Lunn M, 17 January 2006, [2006] SASC 15.
I now deal with the paragraphs of the SOC where the defendant has alleged insufficient particularity:
Notification of the Change to the Defendant
10Before July 2000, HSW sent letters (all in the same terms) to each of the then suppliers to HSW and including the defendant (“the Letter”). The Letter requested that the defendant, from 1 July 2000, invoice HSL for any supplies made by the defendant to the Harris Scarfe business from 1 July 2000 onwards, instead of HSW.
11The defendant received the Letter before July 2000.
Trading with the Defendant After 1 July 2000
12From 1 July 2000:
12.1HSL ordered stock from the defendant;
12.2the defendant traded with HSL by supplying stock to it;
12.3HSW did not trade with the defendant.
No significant prejudice to the defendant has been shown to flow from the generality of these paragraphs. If the plaintiffs could have given better particulars of paragraph 11, I would have expected them to have pleaded them. If they seek to lead evidence at the trial in any greater particularity than that given of when and how the letter was received by the defendant I would expect the trial Judge to consider rejecting that evidence because of the inner limit on evidence provided by the particulars given: H Stanke & Sons Pty Ltd v von Stanke, Lunn M, 20 February 2007, Judgment No [2007] SASC 51 at [8] and not dealt with on appeal in Stanke’s case.
Payments made in Relation Back Period by HSL.
16HSL made the following payments to the defendant during the period relevant to the plaintiffs’ claim maintained in this action.
Cheque Number
Payer of the Cheque
Date Drawn
Date presented
Amount $
458173
HSL
16/02/2001
22/02/2001
16,064.68
454765
HSL
30/11/2000
02/02/2001
151,893.49
456086
HSL
21/12/2000
19/01/2001
100,779.13
453349
HSL
31/10/2000
02/01/2001
3,444.92
451981
HSL
30/09/2000
02/01/2001
1,079.01
Total
$273,261.23
“the HSL Transactions”)
There is an issue whether these cheques were payments made by HSL. It is undisputed that the cheques were drawn on a bank account in the name of another company, Harris Scarfe Holdings Limited. How the plaintiffs will prove at trial that these cheques were payments by HSL may be essentially a matter of evidence and, if so, it does not need to be pleaded. Whether paragraph 16 is pleaded containing sufficient material facts to give fair notice to the defendant of the case it will have answer can only be addressed by the trial Judge. It is a matter related to the internal workings of the Harris Scarfe group of companies and no significant prejudice to the defendant in answering paragraph 16 has been shown from not having further particulars of it.
Payment of the HSL Debt.
19The defendant supplied goods (“the HSL Stock”) to HSL to the value of $273,261.23 pursuant to the HSL Contract.
19.1HSL took possession of the goods the subject of the payments constituted in the HSL Transactions.
19.2The HSL Transactions were payments made to discharge the contractual debt owed by HSL to the defendant.
The defendant seeks particulars of the HSL Stock alleged to have been supplied. Paragraph 14 pleads that there were defendant’s invoices for the HSL Contract. References to those invoices should readily identify the goods which are the subject of paragraph 19. The defendant is likely to be significantly prejudiced in making discovery and in presenting its case if these invoice references are not pleaded. Hence paragraph 19 will not be allowed in its present form.
20In the alternative to paragraph 19 of this pleading, if there was no contractual relationship between HSL and the defendant, HSL was indebted to the defendant nonetheless in respect of the HSL Stock supplied to HSL by the defendant for the reasons that:
20.1the HSL Stock was delivered to HSL;
20.2HSL took possession of the HSL Stock;
20.3HSL paid for the HSL Stock;
20.4the defendant accepted the payments from HSL constituted in the HSL Transactions.
Similarly to paragraph 19 invoice references should be pleaded.
Payment of the HSW Debt.
22The defendant supplied goods to HSW (“the HSW Stock”) to the value of $43,540.10 pursuant to the HSW Contract.
22.1HSW took possession of the HSW Stock which was paid for by the HSW Transaction;
22.2the HSW Transaction was in payment of HSW’s debt to the defendant for the supply of the HSW Stock.
Paragraph 22 is an equivalent of paragraph 19, but relating to HSW instead of HSL. For similar reasons given to those for paragraph 19, invoice references are required for paragraph 22. (Paragraph 8 pleaded that there were defendant’s invoices for the HSW Contract). Hence paragraph 22 will not be allowed in its present form.
28.3Are uncommercial transactions within the meaning of Section 588FB of the Law in that no reasonable person in HSW’s or in HSL’s circumstances would have entered into the transactions;
The defendant complains there are no material facts pleaded in the circumstances of either HSW or HSL rendering the transactions uncommercial. The plaintiffs are entitled to rely on what else has been pleaded about the transactions in the SOC. While they are required in the SOC to plead the material facts and to identify the nature of the legal cause of action and the statutory provisions relied upon, they are not required to spell out in the pleading how they will argue their case at trial. If they rely on unpleaded circumstances, presumably the trial Judge will reject that evidence if it is of any prejudice to the defendant. No significant prejudice to the defendant has been shown.
Paragraphs 8 and 9 - Inconsistent pleadings.
Dealings between the Defendant and HSW and the Defendant and HSL.
A: The HSW Contract.
8Pursuant to a contract or contracts for the supply of goods which contract or contracts were made until around 30 June 2000, the defendant provided goods to HSW in return for the promise by HSW of payment by HSW to the defendant on the defendant’s invoices generated in respect of that supply (“the HSW Contract”).
9The HSW Period, and The Change.
9.1From the mid 1990’s until 3 April 2001, HSL traded as a retail business selling goods to the public from various department stores located in various places in the states of South Australia, Tasmania, Western Australia, Queensland, New South Wales and Victoria (“The Harris Scarfe Department Stores”). For the purposes of this pleading that trading will be called “the Harris Scarfe business”).
9.2Amongst the activities of HSL in the Harris Scarfe Business was the purchase of goods (“stock”) from suppliers and the sale of that stock to customers of the Harris Scarfe business.
9.3Until around 1997 HSL acquired stock from suppliers of stock which was then sold by HSL to customers in the operation of the Harris Scarfe business. During this period HSL was both the purchasing entity and the selling entity of the stock.
9.4One of the suppliers of stock to the Harris Scarfe business in the late 1990’s was the defendant.
9.5From around 1997 HSL no longer purchased stock from suppliers but instead stock was purchased from suppliers by HSW.
9.6From around1997 having purchased the stock from HSW, HSL sold the stock to its customers in the operation of the Harris Scarfe business.
9.7The arrangement described in paragraphs 9.5 and 9.6 continued until 1 July 2000 when HSL resumed purchasing stock from suppliers (that is, resumed acting as the purchasing entity as well as the selling entity).
9.8The period of operation of the arrangement between HSL and HSW described in paragraphs 9.5, 9.6 and9.7 of this pleading is described in this pleading as the “HSW period”.
9.9 (quoted above)
Whilst these paragraphs are convoluted and inelegant pleadings, I do not consider that there is such an inconsistency between subparagraphs 9.5 and paragraph 8 that there is an embarrassing pleading. On the whole of the two paragraphs, paragraph 8 must mean that HSW commenced its purchasing from around 1997.
Plea of subjective intention.
13In the alternative to paragraphs 10 and 11 of this pleading, if the Letter was not received by the defendant, then in any event from 1 July 2000 HSL transacted with the defendant on the belief, understanding and assumption that the defendant had received the Letter.
The subjective intentions of HSL are not relevant to any pleaded cause of action. Paragraph 13 is not to be allowed.
Plea contrary to known facts.
Paragraph 16 is quoted above. I do not accept that the mere fact that the cheque account in question was in the name of Harris Scarfe Holdings Limited makes the plea in paragraph 16 so untenable that it should not be allowed. I repeat what I said above in paragraph 16.
Untenable plea.
Paragraph 20 is quoted above. If there was no contractual relationship whatsoever between the parties, I accept the defendant’s contention that no debtor/creditor relationship arises merely by delivery of stock and such a relationship is an essential element of the cause of action under s 588FF of the Law. If what the plaintiff is alleging is that there was not contract in the terms of the HSL contract as defined in paragraph 14 and there was another implied contract based on the matters referred to in paragraph 20, that needs to be expressly pleaded.
Rolled up pleading.
Paragraph 18 defines “the Relevant Transactions” as the transactions pleaded in respect of both HSL and HSW. However, 28.2 pleads that HSW and/or HSL were parties to the relevant transactions for the purpose of s 588FA of the Law. The claims in relation to HSL and HSW are separate and distinct causes of action, and, once the relevant findings of fact are made, they cannot be pursued in the alternative. I accept the defendant’s contention that it is embarrassing to plead them in this way. Likewise, it is impermissible in the prayer for relief to claim judgment for a single sum. Separate judgments must be sought in respect of the claims for each of HSL and HSW. Paragraph 28 and the prayer for relief in the SOC will not be allowed.
I will now hear the parties on what further amendments the plaintiffs will seek to overcome those parts of the SOC which I am not prepared to allow and on costs. Other than setting an adjourned hearing date I have not yet made any order on FDN 89.
Adjourned to a hearing on 28 November 2007 at 9.15 am.
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