Deen Pty Ltd v Geodesy Pty Ltd & Ors

[2024] NSWDC 111

District Court

New South Wales

Medium Neutral Citation:

Deen Pty Ltd v Geodesy Pty Ltd & Ors [2024] NSWDC 111

Hearing dates:

11 April 2024

Date of orders:

11 April 2024

Decision date:

11 April 2024

Jurisdiction:

Civil

Before:

Abadee DCJ

Decision:

See paragraphs [55]-[57]

Catchwords:

CIVIL PROCEDURE – alleged partnership dispute – applications for summary dismissal and (alternatively) strike out of an amended pleading – amended pleading filed out of time directed – whether leave to amend should be granted retrospectively

Legislation Cited:

Civil Procedure Act2005 (NSW) ss 56, 58(2)

Corporations Act 2001 (Cth) s 1317H

Uniform Civil Procedure Rules 2005 (NSW) r 13.4, 14.28

Cases Cited:

Agar v Hyde (2000) 201 CLR 552

Texts Cited:

J Hamilton, G Lindsay and C Webster New South Wales Civil Procedure Handbook 2023 (Lawbook Co, 2023)

Category:

Procedural rulings

Parties:

Deen Pty Ltd (Plaintiff/Cross Defendant)
Geodesy Pty Ltd (First Defendant/Cross Plaintiff)
Vrusabh Jayesh Shah (Second Defendant)
Robert Seymour Davidson (Third Defendant)

Representation:

Counsel:
Mr A Patterson (Plaintiff/Cross Defendant)
Ms R Kumar (First Defendant/Cross Plaintiff)
Solicitors:
Edmond Khoury Solicitors (Plaintiff/Cross Defendant)
Harmers Workplace Lawyers (First Defendant/Cross Plaintiff)

File Number(s):

2022/00302017

Publication restriction:

Nil

EX TEMPORE REASONS FOR JUDGMENT

1. Litigation between the plaintiff, and respondent on the motion (“Deen”) and the defendant and applicant on the motion (“Geodesy”) commenced in the Small Claims Division of the Local Court of New South Wales on 10 October 2022. That litigation featured a relatively modest claim by Deen for breach of a services contract and, alternatively, a claim on a quantum meruit, for a liquidated sum (just over $17,000 excluding interest), arising from what was said to be Deen’s supply of services to Geodesy in 2019 and 2020.

2. Geodesy defended Deen’s claim, partly by positing a different relationship to that which Deen alleged. Whilst the dispute was still in the Local Court, Geodesy also cross-claimed against Deen and other parties. In that cross-claim (as amended as at 16 December 2022), Geodesy contended that Geodesy and Mr Timothy Sigley (who was, amongst other things, a director and then Managing Director of Geodesy) and Deen entered into a written arrangement in 2021 relating to surveying and town planning services to be supplied to Geodesy. Geodesy relevantly complains that Mr Sigley and Mr Deen severally breached terms of that arrangement, and also fiduciary duties and obligations owed to it under the Corporations Act 2001 (Cth).

3. On 25 May 2023, the litigation in the Local Court was transferred to this Court on the basis that the relief sought in Geodesy’s cross-claim exceeded the Local Court’s (monetary) jurisdictional limit.

4. On 6 July 2023, a direction was made by Olsson SC DCJ that Deen serve an amended statement of claim and a referral was made for a mediation. A timetable was also set for evidence.

5. An amended statement of claim was filed on 20 July 2023.

6. For reasons not now necessary to refer to, on 13 October 2023, the Judicial Registrar made a consent direction for Deen to file and serve a further amended pleading by 27 October 2023. In the events that occurred, it was only on 13 November 2023 that Deen filed an amended pleading and on 28 November 2023, Deen’s solicitor, Mr El Khoury, filed a notice of motion in which two orders were sought. First, Mr El Khoury sought a further grant of leave to rely on the amended pleading filed on 13 November 2023. Secondly, Mr El Khoury sought an order that Geodesy comply with a notice to produce that he had issued, on Deen’s behalf, to Geodesy’s solicitor, on 13 November 2023.

7. As to the amended pleading, its content was transformational to the litigation: Deen effectively abandoned the claim that had been brought against Geodesy in the Local Court. Put very simply, for introductory purposes, Deen’s complaint now concerned its mistreatment by Geodesy, and two of its officers (Ruslow Shah and Mr Davidson) as a minority shareholder in Geodesy.

8. On 15 December 2023, Geodesy brought the current notice of motion. That motion contains applications that Deen’s amended pleading filed on 13 November 2023 be summarily dismissed (under r 13.4 of the Uniform Civil Procedure Rules 2005 (NSW)) (“UCPR”) or struck out (under r 14.28 of the UCPR); and for an order that Deen’s notice to produce dated 13 November 2023 be set aside.

Evidence on the applications

9. Mr El Khoury prepared two affidavits on the applications (28 November 2023 and 4 January 2024).

10. In the first of those affidavits, Mr El Khoury explained the circumstance in which application was brought for leave to amend. This was effectively an explanation for the delay in filing the Further Amended Statement of Claim (hereafter ‘FASC’); a delay of 16 days. The explanation was that Deen’s director was overseas and it took time for him to obtain instructions. Mr El Khoury added that no prejudice was caused to Geodesy given the then imminence of a mediation (scheduled for 11 December 2023). No point was taken about the correctness of that explanation. The delay was not significant and but for my consideration of Geodesy’s applications and findings I make about them, I would be inclined to grant leave to Deen to rely upon the document.

11. For its part, Geodesy relied upon the affidavit of Patrick Will dated 8 November 2023.

12. It is appropriate to deal initially with Geodesy’s application for summary dismissal (and strike out) Deen’s amended pleading, since if either application was acceded to, it would make Deen’s application for a further grant of leave to rely upon FASC otiose and may also be dispositive of the dispute about the notice to produce. Dealing with the summary dismissal application first also has additional utility since the Court’s consideration of that application does not depend upon the form of Deen’s pleading.

The applications for summary dismissal/strike out

Summary of Deen’s FASC

13. As I interpret this iteration of Deen’s pleading, and with reference to the pertinent paragraph numbering in the document, it is intended to convey the following:

1. On or about 24 November 2019, an informal (verbal) three-way partnership agreement was entered (paragraphs 4(a), 5(a)).

2. The partners were Messrs Sigley, Shah and Davidson, with each of those individuals trading, or having the capacity to trade, through their own particular corporate vehicles (paragraphs 4(a), 7(a));

3. The partners chose Geodesy as the singular corporate vehicle to conduct the affairs of the partnership (paragraph 6(a));

4. The separate corporate vehicles of those individuals (which for Mr Sigley was Deen) would have a 1/3 profit share in Geodesy (paragraph 3a, 3b, 7(a), 14(a))

5. Other terms of the partnership agreement were provided for:

1. rights of the partners to retain customers they brought into the partnership upon termination (paragraphs 8(a), 9(a));

2. rights of the partners to payment for work performed for the partnership (paragraphs 10(a) and 11(a));

3. the roles of the individuals (paragraph 12(a)) (although on 11 December 2019, there was a ‘restructure’ that carried the consequence that each of Messrs Davidson, Sigley and Shah became directors (paragraph 13(a)))

6. all of Geodesy’s directors had access to the partnership’s bank account (paragraph 16(a));

7. prior to May 2022, Deen received, as part of its share of profits the sum of approximately $105,000 (paragraph 3(c)).

8. since May 2022, Deen has not received any profits (paragraph 3(b)).

14. Relying upon these alleged facts, Deen seeks orders for payments by Geodesy reflecting what it contends (one-third) profit entitlements, under the partnership agreement for the financial years ended 30 June 2021, 30 June 2022 and 30 June 2023, which are respectively quantified as being $120,000, $125,000 and $200,000 (paragraphs 1(a), 2 and 3 in the ‘relief claimed’). Separately, it also seeks an order that Geodesy pay damages (also quantified in the sum of $315,277) for what it asserts as being “the oppressive conduct of the directors”.

15. So far, I have addressed the allegations and relief that Deen makes against Geodesy. Other allegations are made with relief sought against Mr Shah and Mr Davidson, identified as ‘directors’. I am informed that neither director was served with the FASC.

16. At paragraph 3(e) of the FASC, Deen pleaded the following allegation:

“In the event that it is found that the Third and the Fourth Defendants have taken the monies to the benefits of themselves or their entities against the interest and entitlement of Deen, the Directors are personally liable to account for the loss or damages suffered by Deen.”

17. This allegation appears inapt. There is no identification of Third and Fourth Defendants. There is however a Second and Third Defendant (Mr Shah and Mr Davidson, respectively) and they are, as indicated, identified as directors of Geodesy. I take it that the allegation is made against them. That inference derives partly from prayers 5 and 6 which seek relief against Messrs Shah and Davidson. Prayer 5 seeks an order for each of those individuals to account for profits they received and prayer 6 seeks a declaration (expressed to be legally sourced upon s 1317H of the Corporations Act) in substance that they breached their respective fiduciary duties by misusing their positions to procure for themselves an improper financial advantage, viz a viz Deen.

Argument

18. I emphasise, at this point, that the applications have been brought by Geodesy; not by Messrs Shah and Davidson who have not been served.

19. Generally, Geodesy makes the point, similar to what I have already noted, that Deen had abandoned the claim it articulated in the Local Court and sought to introduce new claims for the first time over a year after the litigation had originally commenced in the Local Court. Secondly, Geodesy contended that the new claims did not disclose a reasonable cause of action and were manifestly deficient. Thirdly, Geodesy contended that the claims were otherwise frivolous or an abuse of the Court. At the hearing, Ms Kumar emphasised a lack of engagement by Deen with the applicant and argued this was a discretionary consideration against Deen. I note however, that the applicant did not rely upon r 12.7 of the UCPR.

20. Geodesy made the following specific criticisms of the latest iteration of the pleading.

21. First, there was, in paragraph 3(a) reference to a ‘directors’ agreement’ that was not properly pleaded or particularised. In response to this criticism, Dean says that the directors’ agreement is within the knowledge of the directors of Geodesy.

22. Secondly, the source for the assertion of a one-third interest in profits identified in 3(b) was not properly pleaded or particularised. In response to this criticism, Dean says that this matter is within the knowledge of the directors of Geodesy; who formed the partnership at first instance and transferred their interests to corporate structures.

23. Thirdly, the notion, in 3(e) that Messrs Shah and Davidson should account to Dean was only contingent. In response to this criticism, Deen says that the directors have refused to pay an dividend, but in any event this was a matter of evidence until the directors produced documents that are sought in the notice to produce.

24. Fourthly, the intention of the parties to establish Geodesy as the corporate entity to ‘express’ the partnership is not properly particularised. Deen’s response is that this is a matter for documentary evidence and is, at any rate, a matter known to the directors.

25. Fifthly, the idea (or ‘agreement’) that each partner would have their own corporate entity is not properly pleaded or particularised. Deen’s response is that this is also a matter for documentary evidence and is, at any rate, a matter known to the directors.

26. Sixthly, the source of the terms of the partnership, as identified in paragraphs 8(a), 9(a), 10(a) and 12(a) are not properly pleaded or particularised. Deen’s response is that this is a matter for documentary evidence and is, at any rate, a matter known to the directors.

27. Seventhly, there is no reference to ‘loss’ in paragraph 16(a).

28. Eighthly, although in prayers 1(a), 2 and 3 relief is claimed for the financial years ended 2021 to 2023, respectively, it is not pleaded that those sums represent one-third of the profit share.

29. Ninthly, there are no material facts relied upon to sustain a contention of ‘oppressive’ conduct. In answer to this point, Deen says that the oppressive conduct was Geodesy’s refusal to pay it without reason and “the conduct of the Directors in their dealing with Sigley”.

30. Finally, the material facts are not pleaded to sustain contentions about the personal liability of Messrs Shah and Davidson. In answer to this point, Deen says that this is a matter for evidence.

31. Generally, Deen points to matters pleaded in Geodesy’s cross-claim, at paragraphs 24 and 26(c)(i)-(iii) which, Deen contends, amounts to ‘admissions’.

32. I note that paragraph 24 of the cross-claim featured an allegation by Geodesy that “On or around 11 January 2021, the First Cross-Defendant (ie Deen) made a written agreement with the Cross-Claimant (ie Geodesy)”. At paragraph 25 of the cross-claim, Geodesy also asserted certain obligations on the part of both Deen and the Second Cross-Defendant (Mr Sigley)

33. I also note that in paragraph 26, it is alleged that Deen and Sigley generated substantial revenue. Particulars indicated that this was a reference to each generating approximately $327,500 in revenue for the 2021/22 financial year.

34. Deen also complains that the current applications were brought before Geodesy sought further and better particulars.

Principles

35. Procedural applications of the present kind are all informed and indeed regulated by the overriding principles of case management identified in s 56 of the Civil Procedure Act2005 (NSW) and the non-exhaustive and relevant considerations that the Court is required to consider under the rubric of the ‘dictates of justice’ in s 58(2) of the Civil Procedure Act.

36. This is of some significance since it has been argued that the test for summary dismissal under r 13.4 may be less strict than it was prior to the enactment of that legislation (Hamilton et al, New South Wales Civil Procedure Handbook 2023, Lawbook Co. [r 13.4.130], pp 558-559). That is not, however, to say that the provisions displace the Court’s consideration of well-established common law principles in which such summary dismissal applications are brought where there is no inconsistency with the statutory provisions. In particular, a Court will be slow to summarily dismiss a party’s claim unless there is a high degree of certainty that the party, with the benefit of usual interlocutory processes, will fail if the case went to trial (Agar v Hyde (2000) 201 CLR 552 at [57]).

37. There is force in the applicant’s point that it is curious, to the point of intriguing, that the respondent has abandoned the whole claim that it had prosecuted in the Local Court; even if that was explained and that it waited a substantial period of time, since the inception of that claim in the Local Court, to bring the new claims in this Court. However, that may be a discretionary reason to refuse an amendment application. It does not itself, in my view, justify the invocation of the Court’s power of summary dismissal.

38. Subject to some qualifications, I am not persuaded that the specific matters raised by the applicant warrant summary dismissal; in the sense that Deen’s case is so hopeless that, with the benefit of interlocutory processes, it is doomed to failure. Earlier in these reasons, I laid out what I understood to be the respondent’s (new) case. However it is expressed in the FASC, it is broadly comprehensible if a little deficient in its expression. The gist of it is that Deen did not obtain the profits it claims it was entitled to under a partnership. The partnership was controlled by three directors; all of whom had access to Geodesy’s bank account. It appears that Deen is erecting a case against directors Shah and Davidson, that they had the opportunity to and did divert profits of the partnership to themselves. Deen seeks relief against the partnership and the directors (who controlled the corporate entities that constituted the partners) for what is effectively what he contends are debts owed to him over the three financial years referred to in the pleading. In such a context it is hard to see what ‘damages’ can lie, but a case could conceivably be made that profits were diverted to the two directors to their advantage and to his or its detriment.

39. Virtually all of the applicant’s points go to the deficiencies in the articulation of the respondent’s claim. The usual remedy for that, if those deficiencies are so material as to preclude the applicant from obtaining a proper and informed understanding of the respondent’s claim, is the provision of further information (particulars) or, if that is not appropriate, a strike out. There is force in the respondent’s contention that unless there is a serious concern that a defendant cannot comprehend a plaintiff’s case, strike out applications are discouraged.

40. The qualifications to that view concern the respondent’s common answer that it cannot provide further particulars unless and until it obtains documents, which it seeks through the applicant’s compliance with the notice to produce. That answer invites suspicion that the issue of the notice to produce is in effect, a fishing expedition, designed to identify whether in fact the respondent has an existing case or is merely looking for one. The answer inverts the proper procedural sequence.

41. A prominent illustration of this is the contention in paragraph 3(e) of the FASC which, as I have noted, is contingent in form. It is improper to allege a case that does not (yet) exist. There is something of a hint (in the FASC) as to how such a case may be made: if the other directors had access to the Geodesy (partnership) bank account and if, somehow, Mr Sigley/Deen was deprived access to the account or the partnership’s books and accounts. But if my surmise about the inference that Deen wishes to draw is right, then it should say so without resorting to contingencies. Deen did not seek and is not now entitled to preliminary discovery. Paragraph 3(e) in the FASC would be susceptible to being struck out in its current form.

42. A second illustration is the general complaint of oppressive conduct referred to in prayer 4. The pleading of this was inadequate but in the respondent’s response, in its submissions, the respondent cited the directors’ refusal to pay partnership profits as an incident of oppressive conduct, but also referred to unparticularised ‘other conduct’ by the directors. The latter reference is inadequate. The respondent is to be taken to be relying upon the cited instance of refusal to pay dividends unless and until it applies for any further amendment.

43. Beyond the matters I have specifically alluded to, subject to a further qualification, I am not persuaded that the balance of the pleading, or the statement of relief should be struck out. If the applicant considers it necessary to have further information, in the light of Deen’s responses in its submissions, it can consider its position. It is not, however, the function of the Court to tell Deen how to plead its case.

44. The qualifications, which in my view can be met by the provision of further particulars, are that:

1. The existing particulars for the partnership agreement should be supplemented. The applicant is entitled to be told the circumstances as to how and when such verbal arrangement came into being (such as who were the persons who had the relevant conversations).

2. Greater clarity should be given to when the directors’ agreement came into being; noting that two alternative dates are indicated in paragraphs 5(a) and 13(a). If the latter represented a variation of the former that should be indicated;

1. Further particulars should be given as to the circumstances of the alleged ‘restructure’ in paragraph 13(a);

2. further particulars of the alleged terms of the partnership agreement (paragraphs 6(a), 7(a), 8(a), 9(a), 10(a), 11(a) and 12(a)) should be provided. If there is occasion for those particulars to be supplemented once interlocutory processes have been invoked, so be it. But it should not occasion difficulty for the respondent to provide the best particulars that it can given that it has pleaded a verbal partnership agreement.

45. Other than the parts I have referred to, and despite some disquiet about the form of allegations, the pleading is not so defective as to warrant its striking out.

Application to amend

46. Since the respondent’s pleading has survived summary dismissal and a striking out, I return to the question whether, in light of the respondent’s delay in filing it within time, a further grant of leave should be given nunc pro tunc.

47. Although Deen’s explanation for delay is not entirely satisfactory – it is hard to see how in this day and age of ease in communications Mr El Khoury could not have obtained instructions sooner than he did – the period of delay is relatively short and, as Deen submits there is virtually no prejudice to Geodesy because of it.

48. As a matter of form however, and in light of earlier rulings, it would be more practicable simply to direct that Deen Pty Ltd file and serve a Second Further Amended Statement of Claim in conformity with my reasons. That document will supersede the FASC. Potentially, if advised, there may be additional particulars that may be requested, however, I not only emphasise the requirement that a pleading party is only required to supply ‘necessary’ particulars, but the imperative, applicable to parties, that interlocutory disputes should be avoided if possible. There have already been enough in this litigation to date and the Court’s tolerance for them in this litigation is growing thin.

49. It is also appropriate that Deen Pty Ltd pay the costs of the first defendant occasioned (or thrown away) by the amendments to the Statement of Claim and (now) the FASC.

The application to set aside the notice to produce

50. By his first affidavit, Mr El Khoury purported to explain the adjectival relevance of the categories sought in the notice to produce. But this consisted of no more than a bare assertion that the documents “go to the essence of the plaintiff’s claim” whilst pointing out that (to that point) no (reasoned) objection had been made by Geodesy to them. That evidence has no utility and I place no weight upon that evidence.

51. In his second affidavit, Mr Khoury set out some features of the procedural chronology since his first affidavit, and observed that a mediation for 19 December 2023 had been vacated (he asserted) on Geodesy’s ex parte application. That to my mind, is irrelevant to what I no have to decide.

52. Geodesy’s written submissions indicate the main ground to set aside the notice is the incurable deficiencies in Deen’s pleading. For reasons already stated, I reject that submission. A second submission is that the period in the categories in the notice are broader than the period in which, according to Deen’s case, it was deprived of its profit share. However, it is not irrelevant to ascertain the extent of the deprivation of profit to ascertain the position in a slightly longer period allowed for in the notice. I reject that particular basis of opposition.

53. In my view, in light of my rulings on the pleading, there is a legitimate forensic purpose in the respondent obtaining the categories of documents described in Mr El Khoury’s notice of 13 November 2023. They are plainly relevant to the cases, against the partnership (as a collective) and against the other directors about the alleged circumstance of the respondent not receiving a profit share for the period and for the diversion of profits, or part of them, to the two individual directors. There was no suggestion that production would be unduly burdensome.

54. The applicant’s application to set aside the notice to produce is refused.

Orders

55. I will not repeat my procedural rulings.

56. I order as follows:

1. The defendant is to supply documents in answer to the categories identified in the notice to produce within 7 days;

2. Leave is granted to the plaintiff to file and serve a Second Further Amended Statement of Claim in conformity with these reasons by 2 May 2023, including provision of particulars;

3. The notices of motion dated 28 November 2023 and 15 December 2023 are otherwise dismissed;

4. The proceeding is referred to mention on the Online Court on 9 May 2023 where further directions will be made.

57. On the question of costs, there has been no clear cut winner in this interlocutory dispute. Although the defendant fell short of its primary objective, it has, or will have, achieved an incidental objective of obtaining a clearer understanding of the plaintiff’s case; which resulted from the circumstance that the Further Amended Statement of Claim was deficient as to form and insufficient as to the provision of information, in the respects enumerated. In my view, the costs of those motions should be costs in the cause.

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Decision last updated: 11 April 2024