FBM Corporation v FBM Licence Limited

[2014] WASC 327

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   FBM CORPORATION -v- FBM LICENCE LIMITED [2014] WASC 327

CORAM:   BEECH J

HEARD:   ON THE PAPERS

DELIVERED          :   15 SEPTEMBER 2014

FILE NO/S:   CIV 2291 of 2013

BETWEEN:   FBM CORPORATION

First Plaintiff

KUBASHEN NAIDOO
Second Plaintiff

RICHARD NEDILJKO BARBARICH
Third Plaintiff

AND

FBM LICENCE LIMITED
First Defendant

ALISTAIR ROBERT MACKINLAY
Second Defendant

COLIN JOHN BARBOUTIS
Third Defendant

Catchwords:

Practice and procedure - Pleadings - Strike out application

Legislation:

Rules of the Supreme Court 1971 (WA), O 20 r 19

Result:

Application dismissed

Category:    B

Representation:

Counsel:

First Plaintiff                :     No appearance

Second Plaintiff            :     No appearance

Third Plaintiff              :     No appearance

First Defendant            :     No appearance

Second Defendant        :     No appearance

Third Defendant           :     No appearance

Solicitors:

First Plaintiff                :     Solomon Brothers

Second Plaintiff            :     MKI Legal

Third Plaintiff              :     MKI Legal

First Defendant            :     Richard Rowick Barrister & Solicitor

Second Defendant        :     Richard Rowick Barrister & Solicitor

Third Defendant           :     Richard Rowick Barrister & Solicitor

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

Agar v Hyde (2000) 201 CLR 552

Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82

Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256

Casella v Hewitt [2008] WASCA 13; (2008) 36 WAR 1

Farah Constructions Pty Ltd v Say‑Dee Pty Ltd (2007) 230 CLR 89

Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296

Hasler v Singtel Optus Pty Ltd [2014] NSWCA 266

Kimberley Downs Pty Ltd v Western Australia (Unreported, WASC, Library No 6414, 25 August 1986)

Lampson (Australia) Pty Ltd v Fortescue Metals Group Ltd [No 3] [2014] WASC 162

SMEC Australia Pty Ltd v Valentine Falls Estate Pty Ltd [2011] WASCA 138

Theseus Exploration NL v Foyster [1972] HCA 41; (1972) 126 CLR 507

Westpac Banking Corporation v Bell Group Ltd (in liq) [No 3] [2012] WASCA 157; (2012) 44 WAR 1

BEECH J: 

Introduction

1. The defendants apply to strike out the statement of claim or a substantial number of paragraphs in it.

2. For the reasons that follow, I would dismiss the application.

The plaintiffs' claims - broad overview

1. It should be noted that the first plaintiff is in liquidation and has now discontinued its claim.

2. The statement of claim[1] is 74 pages in length.  For the purposes of this application, it is neither necessary nor appropriate to detail the allegations in the statement of claim.

   [1] Amended substituted statement of claim of the second and third plaintiffs dated 28 July 2014.

3. The following is no more than a broad overview aimed at identifying some of the central features of the plaintiffs' claims:

   (1)In 2010, the second plaintiff, Mr Naidoo, invented a building panel known as R9 [1.5].

   (2)In 2011, FBM Corporation, a company controlled by Mr Naidoo, applied for and obtained patents in respect of the R9 products [5] ‑ [6].

   (3)The third defendant, Mr Barboutis, was a financial adviser to FBM Corporation and to Mr Naidoo [7].

   (4)The second defendant, Mr MacKinlay, was a legal adviser to FBM Corporation and Mr Naidoo [8].

   (5)On 23 October 2012, FBM Corporation and Mr Naidoo agreed with the first defendant, FBM Licence, that FBM Corporation would transfer its ownership and intellectual property rights in the R9 product and the patent applications to FBM Licence, and FBM Licence would become listed on the ASX. There were terms of this agreement, referred to as the Complete Agreement, that FBM Licence would pay FBM Corporation $250,000 and that Mr Naidoo would receive from FBM Licence a payment of $500,000 upon listing (the Listing Fee), be appointed as a director, for which he would obtain fees of $75,000 per annum (the Directors' Fees), and consultant of FBM Licence with an annual salary of $200,000 (the Consulting Fees) [13].

   (6)In November 2012, FBM Corporation and FBM Licence entered into a written agreement (the R9 Sales Agreement) by which FBM Corporation transferred all its rights in the R9 product and patent applications to FBM Licence, and FBM Licence agreed to pay FBM Corporation the sum of $250,000 [16].

   (7)Mr Naidoo claims that both Mr MacKinlay and Mr Barboutis breached their fiduciary duties owed to him [19] ‑ [27].  He also claims undue influence rising out of the lawyer‑client relationship [29] ‑ [33].  Further, against Mr MacKinlay he claims damages for negligence and breach of the retainer between them [55] ‑ [67].

   (8)Mr Naidoo claims that FBM Licence is liable as a knowing assistant or recipient for the breaches of fiduciary duty by Mr MacKinlay and Mr Barboutis [28] on the ground that it had knowledge of the undue influence or circumstances giving rise to the undue influence of Messrs MacKinlay and Barboutis over Mr Naidoo [32]. Mr Naidoo also claims against FBM Licence for breach of the Complete Agreement [34] ‑ [38].

   (9)Mr Naidoo and the third plaintiff, Mr Barbarich, make a claim of oppression arising out of FBM Licence's offering of a rights issue for shares [39] ‑ [54].

The defendants' application

1. The defendants apply to strike out the whole of the statement of claim pursuant to O 20 r 19(1) of the Rules of the Supreme Court 1971 (WA), on the basis that it may prejudice, embarrass or delay the fair trial of the action. Alternatively, the defendants apply to strike out pars 7, 8.1, 10, 13, 20 ‑ 33, 35.1, 39 ‑ 51 and 55 ‑ 67 on the grounds that these pleas disclose no reasonable cause of action or will prejudice, embarrass or delay the fair trial of the action.

Strike out applications - general principles

1. The caution with which a pleading will be struck out on the ground that it does not disclose a reasonable cause of action is well known.[2]  The court must feel a high degree of assurance before summarily dismissing a claim.[3]  While the court may determine a difficult question of law on such an application, it would usually be appropriate to leave the determination of such questions for trial.[4]

   [2] Kimberley Downs Pty Ltd v Western Australia (Unreported, WASC, Library No 6414, 25 August 1986) 6 ‑ 7; Lampson (Australia) Pty Ltd v Fortescue Metals Group Ltd [No 3] [2014] WASC 162 [44].

   [3] Agar v Hyde (2000) 201 CLR 552 [57]; Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 [46].

   [4] Theseus Exploration NL v Foyster [1972] HCA 41; (1972) 126 CLR 507, 514 ‑ 515; Casella v Hewitt [2008] WASCA 13; (2008) 36 WAR 1 [36]; SMEC Australia Pty Ltd v Valentine Falls Estate Pty Ltd [2011] WASCA 138 [20].

2. So long as a pleading fulfils its basic functions of identifying the issues, disclosing an arguable cause of action or defence as the case may be, and apprising the parties of the case that has to be met, it is unlikely to be in the interests of justice and conducive to efficient case management to strike out the pleading.[5]

   [5] Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82 [4] ‑ [7].

The defendants' complaints and the disposition of the application

1. The defendants make a very large number of complaints about various paragraphs of the statement of claim.  I will deal with them in turn.

Paragraphs 7 and 8

1. These paragraphs plead advice said to have been given by Mr Barboutis and Mr MacKinlay.  The defendants' complaint is that much of what is pleaded relates to advice given to Mr Naidoo on behalf of FBM Corporation, not on Mr Naidoo's own behalf.  In my view, that is not a ground to strike out the pleading.  These parts of pars 7 and 8 are background facts which, in my view, could be led at trial whether they had been pleaded or not.  The plaintiffs' contention that advice given to Mr Naidoo on behalf of FBM Corporation is relevant context is sufficiently arguable that it ought not be struck out.  The question is not whether it was strictly necessary for these matters to be pleaded, but whether it is conducive to just and efficient resolution of this case that these paragraphs be struck out.  I am far from satisfied that that is so.

2. Further, the defendants complain that these paragraphs are unnecessarily prolix.  The defendants' solicitors sought particulars of the corresponding paragraphs in predecessor pleadings, so there is not much force in the defendants' complaint that the pleadings and particulars are now very detailed.  Moreover, the defendant need not plead to the particulars, only to the material facts.

3. I decline to strike out these paragraphs.

Paragraph 10

1. Paragraph 10 alleges that, for a particular period, Mr MacKinlay was a de facto director of FBM Licence.  The defendants complain that that allegation is irrelevant to any cause of action claimed or relief sought.  In my view, the plea is not irrelevant.  In par 26.1.1, the plaintiffs allege that Mr MacKinlay was in a position of conflict of interest between the duties he owed to FBM Corporation and those he owed to FBM Licence.  Paragraph 10 pleads one basis for the claim that Mr MacKinlay owed a relevant duty to FBM Licence.

Paragraph 13

1. Paragraph 13 pleads that the Complete Agreement 'included, amongst other terms, the following material terms'.  The defendants complain that this plea should be struck out because it leaves it open for the defendants to be caught by surprise.

2. I must confess to being surprised that, in 2014, a point of this kind is being raised.  On any fair reading of par 13, it is saying that the agreement contained terms other than those pleaded in pars 13.1 to 13.9, but it is the terms in pars 13.1 to 13.9 which are material to the plaintiffs' claim.  In other words, it is those pleaded terms upon which the plaintiffs rely.

Paragraphs 20 to 27

1. In these paragraphs the plaintiffs plead that Messrs MacKinlay and Barboutis procured and counselled Mr Naidoo to execute the R9 Sales Agreement, and in doing so, breached their fiduciary duties owed, in that they were in a position of conflict of interest and duty, and in that they misused their fiduciary position to gain an advantage for themselves.  As a consequence, Mr Naidoo is said to have suffered loss and damage particularised as follows:

   (i)Mr Naidoo has lost the opportunity to earn an income of $200,000 per annum as a consultant of FBM Licence from 29 May 2013 until late October 2015 or October 2017, in accordance with the terms of the Complete Agreement.

   (ii)Mr Naidoo has lost the opportunity to earn income as director of FBM Licence in accordance with the terms of the Complete Agreement.

   (iii)Mr Naidoo has not been paid and lost the opportunity to be paid $500,000 in accordance with the terms of the Complete Agreement.

   (iv)Mr Naidoo's shares in FBM Corporation have been devalued the amount which is the difference between the market value of the R9 Product and Patent Applications and $250,000.

   (v)The market value of the R9 Product and Patent Applications will be the subject of expert evidence, and further particulars will be provided following receipt of such report.

   (vi)Further particulars will be provided prior to trial.

2. The defendants complain that the plaintiffs do not plead that the R9 Sales Agreement impacts upon Mr Naidoo's entitlement to the Consulting Fees, Directors' Fees or Listing Fees.  In my view, reading the statement of claim as a whole, it is implicit that, unlike the Complete Agreement, the R9 Sales Agreement made no provision for Mr Naidoo to receive the Consulting Fees, Directors' Fees or Listing Fees.  A sufficient causal nexus is apparent on a fair reading of the statement of claim.

3. The plaintiffs concede that pars (iv) and (v) of the particulars under par 27 should be struck out.

4. Otherwise, I would not strike out par 20 to par 27.

Paragraph 28

1. This paragraph pleads a claim against FBM Licence based on accessorial liability for the breaches of fiduciary duty of Mr Barboutis and Mr MacKinlay.

2. The plaintiffs plead that FBM Licence knew of the breaches, and received the intellectual property rights in the R9 product and patent applications with that knowledge.

3. The defendants complain that there is no plea of dishonest or fraudulent breach of fiduciary duty, as is required for a claim of knowing assistance.[6]  In my view, for the purposes of the strike out application, there are two answers to that contention.

   [6] Farah Constructions Pty Ltd v Say‑Dee Pty Ltd (2007) 230 CLR 89 [180].

4. First, as I read the pleading, this is a plea of knowing receipt, not knowing assistance.  Intangibles can be property for the purposes of a claim of knowing receipt.[7]  The dishonest and fraudulent design integer does not apply to a claim for knowing receipt.[8]

   [7] Westpac Banking Corporation v Bell Group Ltd (in liq) [No 3] [2012] WASCA 157; (2012) 44 WAR 1 [2156] and following.

   [8] See for example Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 [392] ‑ [393].

5. Secondly, for the purposes of a strike out application, there is doubt as to what is required for a plea of knowing assistance of breach of fiduciary duty.  In Westpac v Bell,[9] Drummond AJA (Lee AJA agreeing) concluded that there was no need to demonstrate moral reprehensibility on the part of the trustee or fiduciary in order to satisfy the requirement of dishonest and fraudulent design.  As the defendants' submissions in reply point out, that view has recently been held by the NSW Court of Appeal to be plainly wrong and not followed.[10]  Nevertheless, a strike out application is not an appropriate occasion to resolve the differing appellate views on this point.

Paragraphs 29 to 33 - claim of undue influence

[9] Westpac v Bell [2112] ‑ [2126].

[10] Hasler v Singtel Optus Pty Ltd [2014] NSWCA 266 [9], [64] ‑ [125].

1. The defendants make several complaints about the plaintiffs' claims in these paragraphs.

2. First, they claim that any loss is the loss of FBM Corporation, not Mr Naidoo.  In my view, that is not a ground for striking out their claim.  The plaintiffs have conceded that part of their loss, as it relates to FBM Corporation's loss, is not recoverable.  Nevertheless, what, if any, losses were suffered by Mr Naidoo, as claimed in par 33, as a consequence of any undue influence as alleged in these paragraphs is a matter for trial.

3. Secondly, the defendants complain that the basis on which it was alleged that Mr MacKinlay was Mr Naidoo's financial adviser is not pleaded.  I do not accept that submission.  The facts relied on by the plaintiffs are those set out in par 30.1 to par 30.7.  In turn, those refer to, among other paragraphs, par 8 and par 9 of the statement of claim.  The matters relied on by the plaintiffs are identified.  Whether those matters are sufficient to make out the plaintiffs' claim is a matter for trial.

4. Thirdly, the defendants assert that the material facts pleaded may be relevant to claims of misrepresentation, but do not go to establish the dominance or ascendancy over Mr Naidoo's will that is required for a claim of undue influence.  As I have said, whether the pleaded facts give rise to a claim for undue influence is a matter for trial.

Paragraph 35.1

1. Paragraph 35.1 pleads that FBM Licence has failed to list on the ASX by reason of the decision of members and representatives of Dankevich, MacKinlay and Barboutis deciding on behalf of FBM Licence to not undertake the listing of FBM Licence on the ASX.  The defendants complain that they are 'left guessing what this means and when the decision was allegedly made'.  This complaint is properly the subject of a request for further and better particulars; it is not a strike out point.

Paragraphs 49.1 and 49.2 - allegations of collusion

1. In these paragraphs the plaintiffs allege that Messrs MacKinlay and Barboutis colluded together, along with members of Dankevich, to cause FBM Licence to complete a rights issue to increase Barralong's, Dankevich's and Mintec's shareholding in FBM Licence, and colluded together by making the representations in par 43 and par 44 in circumstances where those representations were false.

2. The defendants complain that an allegation of collusion is a serious matter which must be specifically pleaded with proper particulars.

3. In my view, the particulars under par 49 adequately identify what the plaintiffs rely upon in support of their allegations.  Whether those matters are sufficient to sustain the inference that is invited by the plaintiffs is a matter for trial.

Paragraphs 39 to 50 - oppression claim

1. Paragraphs 39 to 50 plead an oppression claim in relation to a rights issue, the result of which was that Mr Naidoo lost his majority shareholding in FBM Licence.

2. The defendants complain that the change in shareholding was brought about by a rights issue to which Mr Naidoo, as a director at the time, agreed.  They contend that there is no basis for an oppression claim when the conduct is undertaken with the acquiescence or consent of the applicant, and that it cannot be alleged that the affairs of FBM Licence are being run contrary to the interests of the members as a whole or members are being unfairly discriminated when the rights issue was unanimously supported by the board, including Mr Naidoo, and the offer on its terms was open equally to the members as a whole.

3. I am not satisfied that these matters give rise to grounds to strike out the plaintiffs' pleaded claim of oppression.  Whether there was any acquiescence or consent can be pleaded in the defence, and be the subject of reply.  For example, it is evident from the plaintiffs' submission on this application that the plaintiffs contend that any consent on the part of Mr Naidoo was the result of false or misleading representations made to him by Mr MacKinlay and Mr Barboutis (as pleaded in par 43 and par 44 of the statement of claim).

4. More generally, whether the fact that the impugned conduct was the subject of a unanimous directors' resolution is not, regardless of other circumstances, conclusive on the question of oppression.  Again, this is a matter for trial, not a strike out point.

Conclusion

1. For these reasons, I would order that pars (iv) and (v) of the particulars under par 27 of the statement of claim be struck out.  Otherwise, the defendants' application should be dismissed.

2. On the face of it, the defendants should pay the plaintiffs' costs of the application, to be fixed.  In the absence of agreement as to the order for costs I will receive written submissions from the parties on costs within seven days, and determine the question of costs on the papers.