Denara Nominees Pty Ltd v Scolaro - [2002] WASC 252

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: DENARA NOMINEES PTY LTD -v- SCOLARO & ORS [2002] WASC 252

CORAM: MASTER SANDERSON

HEARD: 12 SEPTEMBER 2002

DELIVERED : 5 NOVEMBER 2002

FILE NO/S: CIV 2157 of 2000

BETWEEN: DENARA NOMINEES PTY LTD
Plaintiff
AND
ANTHONY SCOLARO
JOHN GREGORY SCOLARO
ANTHONY PETER BONAVITA
ROSANA PAMELA BONAVITA
Defendants
JURGEN WERNER PREUSS
First Third Party
BROADWAY FIDUCIARY PTY LTD
Second Third Party
FAIRFAX HOLDINGS PTY LTD
Third Third Party

Catchwords:

Practice and procedure - Application to strike out defendants' statements of claim against third parties - Turns on own facts

Legislation:

Nil

Result:

Application dismissed

Category: B

Representation:

Counsel:

Plaintiff:     No appearance
Defendants:     Mr S F Popperwell
First Third Party           :     Mr K C Staffa
Second Third Party       :     Mr K C Staffa
Third Third Party          :     Mr K C Staffa

Solicitors:

Plaintiff:     No appearance
Defendants:     Pynt McKay
First Third Party           :     Kevin Staffa
Second Third Party       :     Kevin Staffa
Third Third Party          :     Kevin Staffa

Case(s) referred to in judgment(s):

Astley & Ors v Austrust Ltd (1999) 197 CLR 1
Australian Securities Commission v AS Nominees Ltd & Ors (1995) 62 FCR 505
Burke v LFOT Pty Ltd (2002) 76 ALJR 749
Coleman & Ors v Myers & Ors [1977] 2 NZLR 225
Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594
Hurley v BGH Nominees Pty Ltd (1984) 37 SASR 499
Inge & Anor v Inge & Anor (1990) 3 ACSR 63
Lister v Hesley Hall Ltd [2001] 2 WLR 1311
O'Donohue & Anor v Nolton & Ors, unreported; SCt of WA; Library No 4067; 13 March 1981
Royal Brunei Airlines Sdn Bhd v Tan Kok Ming [1995] 3 WLR 64
Wickstead & Ors v Browne (1992) 30 NSWLR 1

Case(s) also cited:

Adams v Eta Foods Ltd (1987) 19 FCR 93
Australian Consolidated Press Ltd v Uren (1967) 177 CLR 221
Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 215
Bugge v Brown (1919) 26 CLR 110
Burke & Anor v LFOT Pty Ltd & Ors [2002] HCA 17
Canadian Pacific Railway Co v Lockhart [1942] AC 591
Chanter v Blackwoods (1904) 1 CLR 39
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Collie v Merlaw & Ors, unreported; SCt of Vic; 22 December 1998
Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594
Cook v Cook (1986) 162 CLR 376
Cooper v Stewart (1889) 14 App Case 286
Deatons Pty Ltd v Flew (1949) 79 CLR 370
Dominion Freeholders Ltd v Aird (1996) 67 SR (NSW) 150
Glandon Pty Ltd v Strata Consolidated Pty Ltd (1993) 11 ACLC 895
Glavanics v Brunninghausuen (1996) 14 ACLC 345
Harvey v R G O'Dell (1958) 1 All ER 657
Heasmans (A Firm) v Clarity Cleaning Co Ltd [1987] BTLC 174
Hospitals Contribution Fund of Australia v Hunt [1949] 1 KB 632
Kimberley Downs Pty Ltd & Ors v The State of Western Australia & Anor, unreported; SCt of WA; Library No 6414; 25 August 1986
Legal Practice Board v Said, unreported; SCt of WA; Library No 940003; 12 January 1994
Mabo v Queensland (No 2) (1992) 175 CLR 1
Minproc v Killinger & Ors [2001] WASC 347
Morris v C W Martin & Sons Ltd (1966) 1 QB 716
Orison Pty Ltd v Strategic Minerals Corporation NL (1987) 77 ALR 141
Sammit v Strickland [1938] AC 678
State Government Insurance Commission v Trigwell (1979) 142 CLR 617
Viro v R (1978) 141 CLR 88

MASTER SANDERSON: This is an application by each of the third parties to strike out the defendants' statement of claim in the third party proceedings. In dealing with the applications I adopted a procedure which would apply to a pleading summons issued under O 20 r 19. In fact the third parties took the view that the statements of claim against them were defective to the extent that the third party proceedings ought be set aside under O 19 r 6. In essence, it was argued that the statements of claim did not disclose a cause of action with the consequence that the statements of claim ought be struck out with no leave to replead. Although O 19 does not, by its terms, provide a third party with the opportunity to attack a statement of claim, there seems no reason in principle why O 20 ought not apply: see Seaman Civil Procedure in Western Australia, par 19.4.11; O'Donohue & Anor v Nolton & Ors, unreported; SCt of WA; Library No 4067; 13 March 1981.
The claim brought by the plaintiff against the defendants can be summarised in this way. The plaintiff is the trustee of the Australian Independent Superannuation Fund ("AISF"). It was appointed to that position on 28 August 2000 by the Australian Prudential Regulation Authority. On 28 August 2000 an order was made pursuant to s 138 of the Superannuation Industry (Supervision) Act 1993 ("the SIS Act") vesting all the property of AISF in the plaintiff. This action is brought by the plaintiff on behalf of AISF. The defendants were at all material times carrying on the business as chartered accountants under the name of Scolaro, Anthony & Co. From on or about 1 July 1994 until 28 August 2000 the trustee of AISF was Broadway Fiduciary Pty Ltd, presently the second third party. At all material times the directors of Fiduciary were Jurgen Werner Preuss, the present first third party, and one Lindsay Dods ("Dods"). In or about 1 July 1994 Fairfax Holdings Pty Ltd, the present third third party, was appointed by the second third party to act as Investment Manager of AISF and the third third party acted in that position to on or about 28 August 2000. The first third party and Dods were directors of the third third party. In or about 1994 the second third party retained the defendants to act as auditors of AISF and the defendants performed those services until on or about July 2000. All of these matters which are pleaded in par 1 through to 8 of the statement of claim are uncontroversial.
The statement of claim pleads that the defendants, pursuant to their retainer and as part of their duty of care, owed certain obligations to the plaintiff. For present purposes these matters can be passed over. By par 16 of the statement of claim the plaintiff pleads:
"Over the period between approximately July 1994 and June 2000, Dods in the course of carrying out management and/or investment functions on its behalf, diverted and/or stole monies from AISF and converted those monies to his own use and benefit and/or benefit of Nominees (Broadway Nominees Pty Ltd a company of which Dods was the sole director and shareholder) and/or Fairfax and/or Fiduciary."
Particulars are then provided of Dods' fraudulent activities. It seems he stole in the region of $500,000. There is no dispute about this. Dods was a rogue who has been tried and convicted and sentenced to a term of imprisonment.
What is alleged by the plaintiff against the defendants is that in breach of their duty of care or in breach of the terms of their retainer, they failed to pick up on Dods' fraudulent activity. It is said, therefore, they are liable for the losses suffered by the plaintiff. There is also a claim for misleading and deceptive conduct under the Fair Trading Act. Although this cause of action is framed in a slightly different way to the other two causes of action, it relies essentially upon the same material facts. It will be apparent from the above that the dispute between the plaintiff and the defendants is of relatively narrow compass.
Each of the defendants statements of claim is dated 6 May 2002. There are differences between each of the statements of claim reflecting the slightly different roles alleged played by each of the third parties. To that extent the strike‑out applications differ slightly one from the other. However, there are common themes in each of the three statements of claim to the effect that a decision on one deals with the other two proceedings. Further, the objections taken by the third parties fall into roughly two classes. The first and most important are those objections which the third parties say, if upheld, would mean that no cause of action exists and the third party proceedings must necessarily fall away. The second class of objections are those which might be regarded as technical pleading points. It was accepted by counsel for the third parties that if these objections were upheld, it was simply a matter of the statements of claim being amended to comply with the rules of pleading. It is convenient to deal first with the more substantial objections raised by the third parties.
By par 16 of the statement of claim against the first third party ("Preuss") it is alleged that Preuss as a director of the second third party ("Fiduciary") owed a duty of care at law and/or equity to members of AISF. It is said this duty of care was to exercise reasonable skill, care and diligence in relation to 15 separate matters pleaded in the paragraph. By way of example, it is pleaded by par 16(1) that Preuss owed the members of AISF a duty to exercise reasonable skill, care and diligence before signing any documents on behalf of Fiduciary as trustee of AISF. What is said on behalf of Preuss is that, as a director of Fiduciary, he was not in a position where he owed any duty of care to members of AISF. Rather, it is said that as Preuss was a director of Fiduciary, it was only to the company that he owed any duty.
On behalf of the defendants it is submitted that there is authority for the proposition that the fiduciary responsibility of a director of a trustee company extends to the beneficiaries of the trust of which the company is a trustee. In support of this proposition, counsel for the defendants relied upon the decision of Walters J in Hurley v BGH Nominees Pty Ltd (1984) 37 SASR 499. His Honour said (at 510):
"I am disposed to think that the position of the beneficiaries of a trading trust company can be no lower than that of creditors of the company. I do not think it can be rightly said that the Fiduciary responsibility of a director is owed simply to the company by virtue of his status as a director and that it does not extend to responsibility to shareholders or, indeed, to beneficiaries of a trust of which the company is trustee."
In Inge & Anor v Inge & Anor (1990) 3 ACSR 63, O'Bryan J (at 70) said that these principles were "undoubtedly correct". His Honour referred also to the decision of Coleman & Ors v Myers & Ors [1977] 2 NZLR 225. The issue was also mentioned in passing by Finn J in Australian Securities Commission v AS Nominees Ltd & Ors (1995) 62 FCR 505 at 521 where his Honour referred without comment to the decisions of Royal Brunei Airlines Sdn Bhd v Tan Kok Ming [1995] 3 WLR 64 at 75 and Wickstead & Ors v Browne (1992) 30 NSWLR 1.
In my view, given that this is a pleading summons, the case put by the defendants against the first third party is arguable. I need state the position no higher than that. I would not be prepared to strike out this aspect of the defendants' claim against the first third party.
It is said by all third parties that the plaintiff's claim against the defendants is brought in contract. That being so, insofar as the defendants are seeking a contribution from the third parties, they are arguing contributory negligence. Relying on the High Court decision in Astley & Ors v Austrust Ltd (1999) 197 CLR 1, it is said that no claim for contributory negligence against the third parties can be maintained. Insofar as that argument goes, it is undoubtedly correct. However, the plaintiff's claim against the defendants is not only in contract but in tort. If the defendants were found to be liable to the plaintiff in tort, then they would be entitled to claim a contribution from the third parties. I am not satisfied that the defendants' statements of claim against the third parties should be struck out. True it is that any claim for contribution must be based on the assumption that the defendants will be found liable to the plaintiff in tort. But against that background the plea in its present form is perfectly proper.
As against both the second and third third parties, it is pleaded by the defendants that as Dods' fraud was carried out in the course of his employment, both companies are vicariously liable for his fraudulent activities: see par 17 of each of the statement of claims. It is said by the third parties that to succeed, the defendants must show that Dods' criminal acts fell within the scope of his employment duties. That would require both companies to show that they stole from themselves. This was a logical impossibility and the claim could not therefore stand.
In answer to this submission, counsel for the defendants relied on the House of Lords decision in Lister v Hesley Hall Ltd [2001] 2 WLR 1311. The facts of this case, as taken from the headnote, were as follows:
"Between 1979 and 1982 the claimants were resident in a boarding house attached to a school owned and managed by the defendants. The warden of the boarding house, unknown to the defendants, systematically sexually abused the claimants. The claimants claimed damages against the defendants for the personal injuries involved, contending that they had been negligent in their care, selection and control of the warden, alternatively that they were vicariously liable for the torts committed by him. The judge dismissed the direct claims in negligence. He held that the defendants could not be held vicariously liable for the warden's torts but that they were vicariously liable for the warden's failure to report to them his intentions to commit acts of abuse and harmful consequences to the claimants of those acts. The Court of Appeal allowed an appeal by the defendants, holding that the warden's acts could not be regarded as an unauthorised mode of carrying out his authorised duties."
The House of Lords allowed an appeal by the claimants, holding that there was a sufficient connection between the work that the warden had been employed to do and the acts of abuse he committed during the course of his employment. Lord Steyn put the position in the following way (at par 28, page 677):
"Employing the traditional methodology of English law, I am satisfied that in the case of the appeals under consideration the evidence showed that the employers entrusted the care of the children in Axeholme House to the warden. The question is whether the warden's torts were so closely connected with his employment that it would be fair and just to hold the employers vicariously liable. On the facts of the case the answer is yes. After all, the sexual abuse was inextricably woven with the carrying out by the warden of his duties in Axeholme House. Matters of degree arise. But the present cases clearly fall on the side of vicarious liability."
Counsel for the defendants put his clients' case in this way. Dods was charged with managing and investing funds for Fiduciary and Fairfax. That was the nature of his employment. The commission of Dods by fraud by systematically stealing the funds entrusted to his care was inextricably woven with the carrying out by Dods of his duties for Fiduciary and Fairfax. At the very least the position was arguable and the plea should be allowed to stand.
In my view, the position is arguable. It is the case, as counsel for the third parties submitted, that the decision in Lister has not as yet been followed in Australia and, it would seem, the decision goes somewhat further than the Australian authorities. Be that as it may, I accept the defendants' position that the case put by them is arguable and the plea should be allowed to stand.
It is alleged by the defendants against the third parties that each of the third parties are under coordinate liabilities with the defendants to make good losses suffered by AISF. As against the first third party, this plea is to be found in par 31. Paragraph 31 in turn refers to par 22(2) and 22(3). These two paragraphs read as follows:
"If, which is denied, the members of AISF, as alleged by the plaintiff in the main action, suffered any loss or damage, then the defendants say the loss was caused, contributed or otherwise occasioned by;
(1)…
(2)The breach by Preuss of the covenants pleaded in paragraph 17 above, in the manner pleaded at paragraph 20 above; and, or
(3)Preuss' contravention of the SIS Act as pleaded in paragraph 21 above; in that the said conduct:
(a)Enabled or allowed Dods to commit the fraudulent activities; and/or
(b)Caused Fiduciary to publish the erroneous financial statements."
Paragraph 17 refers to par 7 and par 15(1) and refers to the first third party's position as a director or officer of Fiduciary and the fact that the trust deed requires directors of a corporation appointed trustee of AISF to be bound by the provisions of the deed. Consequent upon this fact and s 52(8) of the SIS Act, it is said that the first third party "covenanted" with the members of the AISF to do certain things pleaded at par 17.1 to 17.5. Paragraph 20 pleads a breach of these covenants. This, it is said, gives rise to the coordinate liability. (Similar allegations are made in relation to the second and third third parties. In each case the argument is the same).
It is said by the third parties that this is not a case where the principles of equitable contribution enunciated in such cases as Burke v LFOT Pty Ltd (2002) 76 ALJR 749 would apply. It was said that this was not a case where the defendants and the third parties were jointly and severally liable in respect of the same loss or damage and therefore the principles of equitable contribution had no application.
This issue was the subject of much argument between the parties. In the end, I am satisfied that the question of whether or not the rules of equitable compensation will apply to this case should be determined at trial. In the course of his judgment in the Burke decision, Kirby J (at par 94 to 96) set out what he saw as three guiding principles in determining a right to contribution in each particular case. His Honour indicates that the facts of each particular case are highly relevant in determining whether or not a party has made out a claim for equitable contribution. It is not appropriate to resolve such matters on a pleading summons. Accordingly I would allow this aspect of the defendants' claim to stand.
Finally, all third parties say that the plea based so far as the first third party is concerned, on the Fair Trading Act, and the second and third third parties in relation to the Trade Practices Act cannot stand. It is said the pleaded facts do not disclose that the third parties were acting in trade or commerce. In my view this is an issue for trial. It is true that in Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594, the matter was resolved on a pleading summons. But this case is vastly different. In my view it is at least arguable that representations made to an auditor were made in the course of trade and commerce. This aspect of the defendants' claims can stand.
Turning then to the more technical objections raised by the third parties, I am satisfied that each of the statements of claim is in a proper form and sufficiently discloses the defendants' case. It may be that according to the strictest interpretation of the principles of pleading, there are one or two matters which require attention. But any fair reading of the three statements of claim shows that the plea is both coherent and comprehensive. The third parties have no reason for complaint. I would not strike out any parts of the statements of claim.
It is very much open to doubt whether this application should ever have been brought. A solicitor contemplating a strike‑out application must take care to ensure that the matters complained of are of substance and that they can be effectively dealt with on a pleading summons. A moment's thought would surely have indicated that the arguments put on this application could not possibly satisfy the second of those two requirements. Furthermore, the statements of claim by any measure allow the third parties to know the case they must each meet. That then should have been the end of the matter. Instead, the action has been delayed by months and after a great deal of effort, little or nothing has been achieved. That is most unfortunate.

The third parties' applications will be dismissed. I will hear the parties in relation to costs.