Gang v You
[2020] ACTSC 105
•1 May 2020
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Gang v You |
Citation: | [2020] ACTSC 105 |
Hearing Date: | 13 March 2020 |
DecisionDate: | 1 May 2020 |
Before: | Crowe AJ |
Decision: | See [74] |
Catchwords: | PRACTICE AND PROCEDURE – APPLICATION IN PROCEEDING – Application for summary judgment or strike out of a prayer of relief – allegation of breaches of joint venture – intermixing of personal and corporate rights and obligations – need for the Plaintiff to elect between remedies – paragraphs in plea for relief struck out. |
Legislation Cited: | Court Procedure Rules 2006 (ACT) |
Cases Cited: | Bridgewater v Leahy (1998) 194 CLR 457 Commissioner of State Taxation v Cyril Henschke Pty Ltd [2010] HCA 43; 242 CLR 508 West v State of New South Wales [2007] ACTSC 43 |
Parties: | Yeong Suk Gang (Plaintiff) Jin Ho You (First Defendant) Colquhoun Murphy Pty Ltd Trading as Colquhoun Murphy Lawyers (Second Defendant) |
Representation: | Counsel Dr Hassall (Plaintiff) Mr Buckland (First Defendant) |
| Solicitors Maxwell & Co (Plaintiff) Mills Oakley (First Defendant) Moray & Agnew Lawyers (Second Defendant) | |
File Number(s): | SC 430 of 2018 |
Crowe AJ:
The First Defendant, by Application in Proceeding dated 25 February 2020 (the AIP) sought the following orders:
1.An order pursuant to Rule 1147 of the Court Procedure Rules 2006 (the Rules) for summary judgment in the First Defendant’s favour on the claims made at paragraphs 59(a), 59(b), 59(c), 59(d) and 59(e) of the Amended Statement of Claim dated 20 September 2019 (the ASOC).
2.In the alternative to Order 1, an order pursuant to Rule 425 of the Rules striking out paragraphs 59(a), 59(b), 59(c), 59(d) and/or 59(e) of the ASOC.
3.An order that the Plaintiff not have liberty to replead any paragraphs struck out pursuant to Orders 2 above.
4.An order that the Plaintiff pay the First Defendant’s costs of and incidental to this Application.
5.Any other orders that the Court considers appropriate.
At the hearing of the AIP, Mr Buckland, counsel for the First Defendant, pressed the application for summary judgment, or alternatively, the strike out of paragraph 59(a), paragraph 59(b), paragraph 59(c) and paragraph 59(e) of the Amended Statement of Claim dated 20 September 2019 (the ASOC). In relation to paragraph 59(d) of the ASOC, Mr Buckland submitted that it should be struck out, but with leave to the Plaintiff to replead.
The First Defendant relied upon the affidavit of Nyree Flower affirmed on 25 February 2020.
Dr Hassall, counsel for the Plaintiff, indicated that he formally relied on the affidavits filed in support of the Plaintiff’s case as providing evidence supporting the allegations made in the ASOC. Dr Hassall did not require the Court to read those affidavits.
Mr Bryson represented the Second Defendant. The challenged paragraphs of the ASOC did not directly affect that party. Mr Bryson did not take an active part in the hearing of the Application in Proceeding.
It is convenient to deal with each of the challenged paragraphs of the ASOC in turn.
Paragraph 59(a)
Paragraph 59(a) pleads for relief sought by the Plaintiff. This paragraph is in the following terms:
(a) an order that the First Defendant account to the Plaintiff for monies received by the First Defendant or the First Defendant’s company from the income from tiling and waterproofing services provided by persons who had been employed or engaged by the Plaintiff’s company prior to 1 April 2017, which the First Defendant failed to apply to pay the operating expenses and debts of the Plaintiff’s company
In order to understand the context in which the above relief is sought, it is necessary to refer to the body of the ASOC.
The Plaintiff pleads that at all material times he carried on a tiling business through a company named CU Tiling Pty Ltd (CUT). The First Defendant is alleged to have carried on business as a building contractor through a company named JY Contractors Pty Ltd (JYC).
It is alleged that the Plaintiff is a native speaker of Korean, and that he does not speak, read or write in English. The First Defendant is said to speak, read and write in both languages. It is alleged that the First Defendant was aware at all material times of the Plaintiff’s limitations as to language.
The Plaintiff pleads that CUT was a valuable asset owned by him and members of his family. Its gross income from tiling for the financial year ending 30 June 2015 is said to have been over $1.5 million, and over $1.6 million during the following financial year. The Plaintiff received wages from the company.
Paragraph 9 of the ASOC pleads that an oral contract was made between the Plaintiff and the First Defendant in the following terms:
9. In or about April 2017 the Plaintiff agreed with the First Defendant that the business conducted by the Plaintiff's company would be merged with the business conducted by the First Defendant's company under agreed arrangements which included the following undertakings:
(a)the Plaintiff undertook to continue to oversee the site management and technical matters in relation to the business of the Plaintiff's company;
(b)persons employed or engaged as subcontractors by the Plaintiff's company before the merger, including the Plaintiff, would become, from the date of the merger, employees or subcontractors of the First Defendant's company;
(c)the Plaintiff undertook to channel the income of the business conducted by the Plaintiff's company, including but not limited to about $153,000.00 in accounts receivable for work already completed before the proposed merger on 1 April 2017, to the First Defendant's company;
(d)the First Defendant undertook to pay, from his own money, the debts of the Plaintiff's company that existed as at April 2017, including (but not limited to) the debt by the Plaintiff's company to the Australian Taxation Office, as part of the consideration to be provided by the First Defendant to the Plaintiff for the business conducted by the Plaintiff's company to be merged with the business conducted by the First Defendant's company, and the income and assets of the Plaintiff's company to be transferred to the First Defendant's company:
(e)the First Defendant undertook to apply the income of the business conducted by the Plaintiff's company to pay the operating expenses of the business conducted by the Plaintiff's company, including (but not limited to) wages of the Plaintiff and other employees and Pay As You Go taxation obligations in relation to employees, who were before the merger employees or subcontractors of the Plaintiff's company, but who were to become, from the date of the merger, employees or subcontractors of the First Defendant's company;
(f)the Plaintiff undertook to transfer two cars, two computers and three air conditioners owned by the Plaintiff's company to the First Defendant’s Company
(g)the First Defendant undertook to pay the Plaintiff’s wages in the sum of $1,700.00 per week, and other entitlements, as an employee of the First Defendant’s company from the date of the merger;
(h)the First Defendant undertook to account to the Plaintiff for the income and expenditure in relation to work carried out by the Plaintiff's company and to pay 80% of the profit from the business conducted by the Plaintiff's company to the First Defendant and 20% of the profit to the Plaintiff; and
(i)the First Defendant undertook to give shares in the First Defendant's company to the Plaintiff commensurate with the value of the Plaintiff's company at the time of the merger.
In paragraph 10 of the ASOC, the Plaintiff pleads that he complied with his side of the bargain by allowing the income of CUT (including that arising from the work of those employed or engaged by it) to be “channelled” to JYC.
Paragraph 11 of the ASOC sets out breaches of the contract alleged against the First Defendant. It is in the following terms:
11. The First Defendant failed to comply with his said undertakings, in particular:
(a)the First Defendant arranged or facilitated the receipt by the First Defendant, or the First Defendant's company, of the accounts receivable by the Plaintiff's company as at 1 April 2017, and the income from tiling services conducted by the Plaintiff's company, but failed to pay the existing debts of the Plaintiff's company as at April 2017 from the First Defendant's own monies;
(b)the First Defendant failed to apply the income received from and after 1 April 2017 from tiling and waterproofing services provided by persons who had been employed or engaged by the Plaintiff's company prior to 1 April 2017 of the business conducted by the Plaintiff's company to pay all of the operating expenses and debts of the Plaintiff's company;
(c)the First Defendant treated income from the business conducted by the Plaintiff's company of providing tiling and waterproofing services by persons who had been employed or engaged by the Plaintiff's company prior to 1 April 2017 who became employed or engaged by the First Defendant's company after 1 April 2017 as income of the First Defendant, or the First Defendant's company, or as "loans" by the First Defendant or the First Defendant's company to the Plaintiff;
(d)the First Defendant treated operating expenses in respect of the business conducted by the Plaintiff's company of providing tiling and waterproofing services by persons who had been employed or engaged by the Plaintiff's company prior to 1 April 2017 who became employed or engaged by the First Defendant's company after 1 April 2017, as being operating expenses incurred by the Plaintiff's company;
(e)the First Defendant purported to characterize payments from income from tiling and waterproofing services provided by persons who had been employed or engaged by the Plaintiff's company prior to 1 April 2017 in respect of the operating expenses and debts of the Plaintiff's company as "loans" by the First Defendant, or the First Defendant's company, to the Plaintiff's company, or as funds applied by the First Defendant and the Second Defendant from the net proceeds of the sale of the Plaintiff's house to the First Defendant as payments of alleged "loans" by the First Defendant, or the First Defendant's company, to the Plaintiff's company;
(f) the First Defendant failed to meet Pay As You Go taxation obligations in relation to persons who had been employed or engaged by the Plaintiff’s company prior to 1 April 2017 who had become employed or engaged by the First Defendant's company after 1 April 2017 and purported to treat them for the purpose of PAYG obligations as continuing employees of the Plaintiff's company;
(g)the First Defendant failed to account to the Plaintiff for the income and expenditure in relation to work carried out by the Plaintiff's company and QY persons who had been employed or engaged by the Plaintiff's company prior to 1 April 2017 who had become employed or engaged by the First Defendant's company after 1 April 2017, and failed to pay 20% of the profits of the First Defendant's company to the Plaintiff; and
(h)the First Defendant failed to give any shares in the First Defendant's company to the Plaintiff.
It is then pleaded that CUT was placed under external administration and a liquidator was appointed on 30 November 2017. It is asserted that this occurred due to the First Defendant’s breaches of contract with the Plaintiff.
It is further pleaded that by reason of the First Defendant’s breaches of contract, the Plaintiff has suffered loss and damage. This is particularised under paragraph 58 as follows:
(1)As a result of and arising from the failure of the First Defendant to apply the income of the Plaintiff's company from April 2017 or at all, including the accounts receivable, to pay the Plaintiff's company's operating expenses and debts, the Plaintiff has lost:
(a) the benefit of income from the Plaintiff's company; and
(b) valuable assets, namely the Plaintiff's interests in, and benefit from, the Plaintiff's company and its business,
being income and assets lost by the Plaintiff personally as distinct from income and assets lost by the Plaintiff's company.
Mr Buckland submitted that it is important to note that the evidence of Ms Flower establishes that the liquidator appointed to CUT, Mr P Loi, confirmed that he has not authorised the Plaintiff to bring any proceedings in CUT’s name. Thus, it is said, any money recovered by the Plaintiff under paragraph 59(a) would be moneys payable in the liquidation of CUT. This is because, once the voluntary winding up of CUT commenced, the property of the company became vested in the liquidator. Moreover, the directors of CUT thereafter had no power to bring proceedings on behalf of CUT or otherwise to represent or bind it.
It was further submitted by Mr Buckland that on the winding up of a company, subject to the payment of preferred creditors, the company’s property is to be distributed pari passu among the unsecured creditors.
Mr Buckland emphasised the distinction between the corporate entity and its shareholders and officers. Mr Buckland referred to various authorities, including Grimwade v FCT (No 2) (1949) 78 CLR 199, to support that distinction, particularly in relation to the property of the company.
Mr Buckland argued that the relief sought by the Plaintiff, if granted, would “disrupt” the statutory regime for winding up the company. In effect, Mr Buckland submitted that the Plaintiff would recover property of CUT for his own personal benefit to the detriment of CUT’s creditors. It is on this basis that Mr Buckland argued that the paragraph should be summarily dismissed.
The First Defendant also argued that the current pleading may require him to qualify a forensic accountant to meet the evidence of the expert who was qualified by the Plaintiff, Mr P Green. The Plaintiff’s expert is said to have considered 16 folders of documents. Mr Green’s report (which is annexed to Ms Flower’s affidavit) is a little under 300 pages including annexures. The First Defendant argues that he should not be put to the effort and cost of meeting that report unless there is a properly pleaded case for the relief as sought by the Plaintiff.
Dr Hassall submitted that, effectively, the First Defendant had missed the point. The Plaintiff does not seek any relief against either CUT or JYC. Rather, the pleading formulates a personal claim against the First Defendant on the basis that he undertook to the Plaintiff to do certain things which he failed to do. This included paying particular debts of CUT, including its ongoing operating expenses. It also included an undertaking to account to the Plaintiff for the income and expenditures of CUT’s business and pay 20 per cent of the profit from CUT to the Plaintiff.
Dr Hassall confirmed that the relief sought by paragraph 59(a) was in the nature of an order for an accounting in relation to the income and expenditure of the CUT business while it was under the control of the First Defendant. That accounting would then enable the further relief sought in paragraph 59(b) to be properly assessed.
During the course of submissions, I raised with Dr Hassall that the alleged agreement in relation to the sharing of profits seemed to ignore the independent existence of the entities which actually owned and ran the relevant businesses. Dr Hassall responded by referring to the agreement as being in the nature of a joint venture between the Plaintiff and the First Defendant in which CUT and JYC were “pawns ... or devices”. Dr Hassall submitted that there was no need for CUT or JYC to be parties to the litigation.
Paragraph 59(b)
As noted above, paragraph 59(b) follows on from the accounting sought in paragraph 59(a). It is in these terms:
(b) an order that the First Defendant compensate the Plaintiff for the Plaintiff's loss of the benefit of income from the Plaintiff's company and income from tiling and waterproofing services provided by persons who had been employed or engaged by the Plaintiff's company prior to 1 April 2017 and for the Plaintiff's loss of a valuable asset, namely the Plaintiff's interest in and benefit from the Plaintiff's company and its business
During his submissions, Mr Buckland referred to paragraphs 9 and 10 of Ms Flower’s affidavit. Paragraph 9 refers to information contained in the report of Mr Green, forensic accountant, which was served by the Plaintiff in these proceedings. Mr Green referred to the trading performance of CUT in the financial year ending 30 June 2016 as resulting in a loss of $10,688. Moreover, Annexure 17 to Mr Green’s report is a copy of a report of the liquidator, Mr Loi, in which Mr Loi stated, “I have determined that the date of insolvency is from at least 31 October 2016”.
Mr Buckland argued that in that context, it is plain, on the Plaintiff’s own evidence, that the shares in CUT were worthless well before the First Defendant is alleged to have become involved in 2017.
Alternatively, it is submitted that the claim for income generated by CUT’s workers should be struck out for the reasons raised in support of the challenge to paragraph 59(a). That is, payment of any sum in respect of that claim would circumvent the liquidation of CUT to the detriment of its creditors.
Dr Hassall pointed out that by paragraph 59(b), the Plaintiff claims compensation not only for the loss of the value of his interest in CUT and its business, but also for the loss of income from CUT’s business. The basis for the latter, it was submitted, was the personal undertaking of the First Defendant that he would ensure that the Plaintiff would receive 20 per cent of the profit of the CUT business after control of it was transferred to JYC.
In reply, Mr Buckland argued that there was a distinction between a share of profit and a share of income. What was claimed in paragraph 59(b) was the latter. Mr Buckland said that on this basis paragraph 59(b) should be struck out as there was “no relevant supporting allegation in relation to the derivation of income.”
Paragraph 59(c) & Paragraph 59(d)
These paragraphs seek relief in the following terms:
(c) an order that the First Defendant pay to the Plaintiff the monies to which the Plaintiff was entitled at settlement of the sale of the Plaintiff's house to the First Defendant, including (but not limited to) the deposit of $75,000.00 and the settlement cheque in the sum of $260,434.27
(d) alternatively, restitution or equitable compensation by an order that the First Defendant pay to the Plaintiff the sum of at least $335,434.27
It is apparent that these pleas rely upon a different cause of action from that discussed above. The cause of action relevant here is specifically pleaded by paragraphs 14-47, and 56-58 of the ASOC.
Those paragraphs plead a further contract between the Plaintiff and the First Defendant. Pursuant to that written contract dated 21 September 2017, the Plaintiff agreed to sell his residential property in Giralang in the ACT to the First Defendant for the sum of $750,000 (the sale of land contract).
It is alleged that, pursuant to the sale of land contract, upon completion of the sale, the First Defendant was required to pay the surplus (after discharge of the mortgage and the adjustments of rates etc.) to the Plaintiff. It was said in the ASOC that the surplus was about $335,434.
The Plaintiff pleads that in breach of the sale of land contract, the First Defendant failed to pay the Plaintiff the surplus, and instead diverted the funds to JYC.
It is then pleaded that the Second Defendant, in effect, acted as solicitor for both parties to the sale of land contract. The Plaintiff was not afforded any independent legal advice about the sale of land contract.
On 21 September 2017, at the time the Plaintiff signed the sale of land contract, the First Defendant represented to him that the contract provided for the Plaintiff to have the option of purchasing the property back from the First Defendant in three years at the price of $750,000. The Plaintiff, who could not read the contract, is said to have signed it on the basis of that representation by the First Defendant. It is asserted that, contrary to the representation, the sale of land contract did not contain such an option.
The sale of land contract is said to have contained conditions enabling the Plaintiff and his wife to remain in occupation of the property after completion, upon paying an occupation fee and other outgoings.
The Plaintiff pleads that on or about 27 October 2017 or 3 November 2017, the First Defendant took him to the Second Defendant’s office and asked him to sign certain documents which had been prepared by the latter. Having regard to the Plaintiff’s limitations in relation to reading and writing English, the First Defendant is said to have explained that the documents had to be signed to enable the completion of the sale of land contract. It is alleged that one of the documents signed by the Plaintiff was an authority to release the surplus funds to JYC.
It is alleged that having regard to the lack of independent legal advice and his inability to read and write English, the Plaintiff did not understand the true nature and effect of the contract or the alleged authority when he signed them.
The Plaintiff claims that he requested information from the First Defendant as to when the surplus funds would be paid to him until in December 2017 and that the First Defendant advised that the funds had been paid to JYC to meet debts which it had incurred in relation to the operation of CUT.
The Plaintiff says that he did not consent to the payment of the surplus funds to JYC.
The Plaintiff also claims that due to the breaches of contract by the First Defendant, he was not liable for the occupation fee which enabled the Plaintiff and his wife to reside in the property.
The Plaintiff pleads that the First Defendant acted unconscionably and against equity and good conscience and that he should be required to pay the Plaintiff “at least” the sum of $335,434.27 by way of restitution or equitable compensation.
The loss and damage relevantly pleaded by the Plaintiff at paragraph 58 are:
(2) As a result of and arising from the conduct and breaches of the First Defendant and the Second Defendant the Plaintiff has been deprived of its right to be paid the surplus funds at settlement of the sale of the Plaintiff's property, including:
(a)the said deposit of $75,000.00; and
(b)the said settlement cheque in the sum of $260,434.27 drawn payable to the Plaintiff.
(3) As a result of and arising from the conduct and breaches of the First Defendant and the Second Defendant the Plaintiff has been deprived of the right promised by the Second Defendant to the Plaintiff to purchase the property from the First Defendant in three years for $750,000.00.
Mr Buckland submitted that in the context of the allegation in paragraphs 36 and 37 of the ASOC (which plead the authorisation by the Plaintiff to pay the surplus of the sale of property to JYC) that the Plaintiff has acknowledged that in fact the money was paid to him, in the sense that his authority was required before it could be diverted to JYC. It is therefore illogical for the Plaintiff to claim a breach of contract based on the failure of the First Defendant to pay him the surplus money.
Dr Hassall responded by referring to the assertion that the Plaintiff did not actually receive the money or the cheque as amounting to a breach of contract. Dr Hassall did confirm that the Plaintiff also relied on the Plaintiff having been tricked by the First Defendant both in relation to the signing of the contract itself, and also the authority to pay the surplus money to JYC.
During the course of discussion with the Bench, Dr Hassall argued that the Plaintiff relied on a plea of non est factum. However, he acknowledged that the Plaintiff did not seek to set aside the sale of the Giralang property from the beginning. Rather, he wished to recover that which should have been paid to him upon completion of the sale.
In relation to paragraph 59(d), the First Defendant argued in his written submissions that the paragraph was “opaque”. It was asserted that the Plaintiff had failed to sufficiently plead the detail of the representations made to the Plaintiff which would warrant equitable relief. In oral submissions, Mr Buckland focussed on the word “restitution”. He argued that while there may be a proper basis for the claim of equitable compensation the pleading did not disclose a conventional cause of action (such as money paid by mistake) leading to an order by way of restitution.
Dr Hassall argued that there was an overlap between restitution and equitable compensation, and that the state of the authorities left it open to the Plaintiff to claim them as alternative remedies on the facts as the Plaintiff alleges in the ASOC.
Paragraph 59(e)
This paragraph relates to the occupation fee. It provides:
(e) an order that the First Defendant refund to the Plaintiff the amount of all payments of occupation fees paid by the Plaintiff to the First Defendant in respect of the Plaintiff's occupation of the house from 1 November 2017 until the date on which the First Defendant pays to the Plaintiff the amount of monies to which the Plaintiff was entitled at settlement of the sale of the Plaintiff's house to the First Defendant;
Mr Buckland argued that properly understood, the Plaintiff’s claim for relief in relation to the surplus money from the proceeds of sale is completely independent from the occupation agreement which was a subsidiary part of the sale of land contract. The Plaintiff in seeking relief in relation to the surplus money affirms and relies on the contract. He does not seek to set it aside. The terms of the occupation agreement should be seen in that context.
Under the occupation agreement, the Plaintiff was given possession of the property in return for his promise to pay the agreed occupation fee and outgoings. Mr Buckland submitted that having continued in possession of the property there is no basis on which the Plaintiff could be relieved of his obligation to pay the occupation fee.
Dr Hassall argued that the Plaintiff did not concede that the occupation agreement was independent of the sale of land contract. Moreover, paragraph 59(e) of the ASOC was pleaded as an alternative so as to allow the Court the greatest range of options in fashioning equitable relief should the Plaintiff ultimately succeed.
Consideration
General Principles
The principles were stated in this Court by Jagot J in Galovac Pty Limited v Australian Capital Territory [2010] ACTSC 132 as follows (at paragraph 5):
(1)The party seeking summary judgment faces a “very high threshold” (Financial Integrity Group Pty Limited v Farmer [2009] ACTSC 143 at 12).
(2)The lack of a cause of action must be “clearly demonstrated” (General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129).
(3)The procedure calls for “exceptional caution” (General Steel at 129).
(4)The necessity for argument, even extensive argument, is no bar. However, as soon as it appears that there is a “real question” to be determined on which relief depends, the summary judgment procedure is not available (General Steel at 130 citing Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91).
(5)Mere implausibility of the claim or improbability of success is insufficient; there must clearly be no real question to be tried in the sense that the claim is bound to fail (Seven Network Ltd v News Ltd (No 4) (2005) 214 ALR 686; [2005] FCA 244 at [14] citing Lonrho Plc v Fayed (No 2) [1992] 1 WLR 1 (Ch D) at 5; [1991] 4 All ER 961 at 965).
(6)The application is to be assessed on the assumption that every fact pleaded by the Plaintiff is true (West v State of New South Wales [2007] ACTSC 43 at [9]).
(7)The application must be determined on the substance, not the mere form or expression, of the claim (Financial Integrity Group at [15]).
In so far as the First Defendant seeks an alternative order striking out a paragraph of the relief sought with no leave for the Plaintiff to replead, it seems to me that I should apply the same principles. Otherwise, the First Defendant relies on the conventional application of r 425 of the Court Procedure Rules 2006 (ACT).
I am also conscious of the comment of Connolly M (as he then was) in Lissner v Commonwealth & Ors [2002] ACTSC 53 where his Honour adopted the following paragraph from HCF v Hunt (1983) 44 ALR 365 at 373 (per Allen M):
A court at first instance should be particularly astute not to risk stifling the development of the law by summarily throwing out of court actions in respect of which there is a reasonable possibility that it will be found, in the development of the law, still embryonic, that a cause of action does lie… one cannot predict, with firm assurance, what the future holds as the final formulation of the new development.
Paragraph 59(a) & Paragraph 59(b)
There is no doubt that the contract pleaded by the Plaintiff at paragraph 9 of the ASOC is complex and unusual. The fact that it is an oral contract (presumably in the Korean language), the parties were not legally represented and that it involved the interweaving of the businesses operated by two separate companies will undoubtedly provide the parties, and the Court having to finally determine this dispute, with extremely difficult factual and legal conundrums.
In the course of debate between the Bench and counsel it became clear that the case which the Plaintiff seeks to make is one based on personal obligations said to be owed to him by the First Defendant. Dr Hassall said that the Plaintiff was not seeking to recover anything properly owing to CUT, nor to enforce any right against JYC. Rather, the Plaintiff was seeking to recover damages arising from the asserted breaches by the First Defendant of what was effectively a joint venture agreement made between them.
Under that joint venture agreement, the Plaintiff was to receive 20 per cent of the profit (if any) generated by the conduct of CUT after April 2017.
It may well be, as is suggested by the opinion expressed by the liquidator of CUT as to the insolvency of CUT in October 2016, that there was no profit from the operation of the business in the following year. However, it seems to me that is not something I can assume on this application.
Dr Hassall said that the remedy sought in paragraph 59(a) is an order for an accounting by the First Defendant in relation to the conduct of CUT from April 2017. Presumably that accounting would relate to the time at which CUT ceased to operate, which must have been at or shortly before the company was put into liquidation.
It seems to me that on the facts as pleaded in the ASOC, there may be an arguable case for an order for the taking of accounts in relation to the operation of CUT. I do not see that such an exercise could of itself interfere or undermine in any way the proper conduct of the liquidation of CUT. If the Plaintiff is able to establish that there was an agreement between himself and the First Defendant in the nature of a joint venture, and that the First Defendant relevantly breached his obligations under that agreement leading to the dissolution of the joint venture, the Plaintiff might reach the threshold for seeking an order for accounts. That would be the appropriate method of doing justice between the joint venturers, assuming that the venture is treated as a species of partnership: see Commissioner of State Taxation v Cyril Henschke Pty Ltd [2010] HCA 43; 242 CLR 508 at paragraph 22.
However, given the involvement of the corporate entities, and having regard to the liquidation of CUT, it is apparent that any order for accounting would have to ensure that the interests of the creditors of CUT (and perhaps JYC) were protected. There is force in the arguments put by the First Defendant that the Plaintiff ought not be permitted to recover property which should have been made available in the liquidation of CUT for the benefit of its creditors. No doubt, that is an issue which would have to be addressed should an order for an accounting be considered by the Court at the hearing of the substantive claim.
It is apparent from the above that I am not prepared to summarily dismiss paragraph 59(a) of the ASOC. That said, I find the current pleading confusing and containing significant surplusage. The remedy which the Plaintiff seeks is an accounting of the income and expenditure of the CUT business conducted by the First Defendant and his company between April 2017 and 30 November 2017, the prayer for relief should say so. Moreover, contrary to the submission of Dr Hassall, I am unable to see how an effective order for accounts could be made in the circumstances of this case without the joinder of JYC. In these circumstances, I propose to strike out the paragraph as currently pleaded, but to grant leave to the Plaintiff to seek leave to join JYC to the proceedings and to replead the prayer for relief.
In relation to paragraph 59(b), I see much force in the submissions of the First Defendant that insofar as the Plaintiff claims for the loss of income from CUT and/or the work done by its employees and contractors, the Plaintiff is seeking to recover that which can only be characterised as the property of CUT. The alleged joint venture agreement, if proved, would entitle the Plaintiff to a share of profits assuming certain conditions were met in the running of the business as alleged. That remedy is what was sought by paragraph 59(a). I am unable to see how it is open to the Plaintiff to go beyond the accounting to seek, in effect, recovery of the income of the company itself.
In relation to the value of the asset, I again see an inconsistency between the accounting as sought and a claim for compensation (presumably in the nature of equitable compensation) for loss of the value of CUT. The Plaintiff alleges that he agreed to transfer CUT and its business to the control of the First Defendant and JYC. the Plaintiff claims that there were a number of terms of that agreement which ultimately should have resulted in him receiving 20 per cent of the profit of CUT going forward. The Plaintiff’s pleading affirms and relies upon the joint venture agreement in seeking an accounting. In those circumstances, I cannot see that it is open to him to seek damages for his share of the value of CUT as at April 2017 (such as it was).
In these circumstances, I propose to strike out paragraph 59(b). At this stage I will not grant leave to replead. If the Plaintiff avails himself of the opportunity to join JYC and replead his claim for an accounting I would not be minded to permit the repleading of the claim for the loss of the Plaintiff’s interest in CUT. However, if the Plaintiff elected to abandon the claim for an accounting the possibility of a claim for equitable compensation in relation to the alleged breaches of the joint venture agreement might be resurrected.
Paragraph 59(c) & Paragraph 59(d)
I propose to strike paragraph 59(c) out. The claim pleaded by the Plaintiff is that the Second Defendant acted as his solicitor on the conveyancing transaction. He pleads that the surplus moneys from the sale of land were paid by the First Defendant to the Second Defendant on his account. The Plaintiff further pleads that he was then tricked by the First Defendant into authorising the payment of those monies to JYC. I do not accept the submission that the fact that the Plaintiff did not physically receive cheques or monies representing the surplus monies as leading to the conclusion that the First Defendant was in breach of his contractual obligation to pay the sum in question. On the Plaintiff’s own case, the First Defendant did pay the surplus monies to the Plaintiff. The monies were held on trust for the Plaintiff by the Second Defendant. It was in that context that the Plaintiff is said to have signed the authorisation to the Second Defendant for it to pay the trust monies to JYC.
I see this plea as an unnecessary distraction from the Plaintiff’s real case.
In relation to paragraph 59(d), it does seem to me that the inclusion of the claim for restitution is unnecessary and may cause confusion. It is clear that the Plaintiff does not seek to rescind or set aside the contract for sale of land. Rather, the Plaintiff seeks to recover compensation for the part of the purchase monies paid under that contract which he says was wrongfully diverted to JYC. In my view, the statement of claim adequately pleads a case of unconscionable conduct on the part of the First Defendant which, if proved, would warrant an order for equitable compensation. The addition of the claim for restitution, so far as I can see, adds nothing to that claim and should be struck out.
Paragraph 59(e)
I accept the submissions of the First Defendant in relation to this paragraph. Given the Plaintiff’s affirmation of the contract in this action, and given that he has continued to occupy the premises pursuant to the occupation agreement contained in the sale of land contract, I can see no basis on which the First Defendant could be ordered to repay the occupation fees paid by the Plaintiff. Assuming the Plaintiff is entirely successful in his claim of unconscionable conduct, it will still be necessary for him to do equity in the context of the relief he seeks; see Bridgewater v Leahy (1998) 194 CLR 457 at 493-494. While equitable remedies are flexible, and it may be accepted that the Court will have a degree of latitude in framing relief which is “practically just”, I do not accept that in the context of this case it would be open to the Plaintiff to retain the benefit of occupation free of the fee which he agreed to pay. Paragraph 59(e) should be struck out.
Conclusion
Having regard to the above I will make orders striking out paragraph 59(a), paragraph 59(b), paragraph 59(c) and paragraph 59(e). I will grant leave to the Plaintiff to apply to join JYC as a defendant and to replead paragraph 59(a), or to apply in relation to the repleading of paragraph 59(b), should he elect to pursue equitable compensation in place of pursuing an order for an accounting. In relation to paragraph 59(d), I will order that the words “restitution or” be struck out.
The First Defendant has been largely successful in his application. However, this case arises from highly unusual transactions which, assuming they occurred as alleged, raise particular difficulties in the identification and formulation of the causes of action and relief available to the Plaintiff. The parties have not addressed me as to costs. My preliminary view is that the costs of the Application in Proceeding should be the First Defendant’s costs in the cause. I will make that order, but allow time for the parties to submit for a different order.
Orders
The orders of the Court are:
(1)Paragraph 59(a), paragraph 59(b), paragraph 59(c) and paragraph 59(e) of the Amended Statement of Claim dated 20 September 2019 are struck out.
(2)The Plaintiff has leave to apply within 28 days of the date of this order in relation to the adding of JY Contractors Pty Ltd as a defendant and the repleading of paragraph 59(a) of the Amended Statement of Claim, or in the alternative, the repleading of paragraph 59(b).
(3)The words “restitution or” appearing in paragraph 59(d) of the Amended Statement of Claim dated 20 September 2019 are struck out.
(4)The costs of the Application in Proceeding dated 25 February 2020 are the First Defendant’s costs in the cause.
(5)Order (4) is not to be taken out until further order if one of the parties exercises the leave granted in the next order.
(6)If any party wishes to seek a different order as to costs from Order (4) that party has leave to notify my Associate in writing within 14 days from the date of this Order.
| I certify that the preceding seventy-four [74] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Acting Justice Crowe. Associate: Date: |
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