Golden Taste Investment Pty Ltd v Laurence
[2016] VSC 250
•16 May 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2015 03978
BETWEEN:
| GOLDEN TASTE INVESTMENT PTY LTD (ACN 142 746 316) | Plaintiff |
| - and - | |
| DANIEL LAURENCE (and others according to the attached schedule) | Defendants |
---
JUDGE: | Derham AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 13 May 2016 |
DATE OF JUDGMENT: | 16 May 2016 |
CASE MAY BE CITED AS: | Golden Taste Investment Pty Ltd v Laurence & Ors |
MEDIUM NEUTRAL CITATION: | [2016] VSC 250 |
---
PRACTICE AND PROCEDURE – Summary judgment application by plaintiff – Requirements for summary judgment by plaintiff – Claim against first and second defendants for breach of fiduciary and directors duties – Claims against the third and fourth companies for liability as knowingly involved in the contraventions of directors duties – Whether plaintiffs verified all the facts on which the cause of action based ‑ Whether defendants have a defence to a the claims or some of them – Admissions made as to use of plaintiff’s information in breach of s 183 of the Corporations Act 2001 (Cth) – Defendants propose to apply to withdraw admissions – Defendants propose to apply for relief under s 1318 Corporations Act 2001 (Cth) – Complex factual circumstances making summary judgment inappropriate – Dispute is of such a nature that only a full hearing on the merits is appropriate s 64(b) if the Civil Procedure Act 2010 – Leave to defend granted.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr L P Wirth | NOH Legal Pty Ltd |
| For the Defendant | Mr L E P Magowan | Septimus Jones & Lee |
HIS HONOUR:
Introduction
The plaintiff applies pursuant to s 63 of the Civil Procedure Act 2010 (Vic) (‘CPA’) and Rule 23.01 of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’) for orders that the defendants’ defences filed on 20 October 2015 be struck out and that the proceeding be listed for an assessment of damages.[1] In submissions, however, Counsel for the plaintiff made clear that what was sought was summary judgment for the plaintiff on its claims in the statement of claim indorsed on the writ. The defendant was under no illusion that this was the relief sought.
[1]Summons filed 16 March 2016.
The Claims and Defences
The plaintiff is the master franchisee for the Cacao Green and Red Mango franchises for Australia. It operates retail stores in Victoria selling frozen yogurt and coffee products. The first defendant (‘Daniel’) was a director and secretary of the plaintiff from 23 March 2010 to 18 February 2015 and was responsible as the business development manager of the plaintiff during that period. The second defendant (‘Jesse’) was a director of the plaintiff between 23 March 2010 and 3 June 2014 and was responsible as director of operations of the plaintiff for that period and until 18 February 2015.
The plaintiff’s claims against Daniel and Jesse are for:
(a) declarations that each of Daniel and Jesse breached fiduciary duties and directors duties arising under ss 180, 181, 182 and 183 of the Corporations Act 2001 (Cth) (‘the Act’);
(b) damages against Daniel and Jesse;
(c) injunctions restraining Daniel and Jesse from improperly using any information obtained as a result of being officers of the plaintiff; and
(d) delivery up on oath to the plaintiff for destruction all documents constituting information which each of Daniel and Jesse obtained by reason of their positions with the plaintiff.
The claims against the third defendant (‘Yogulatte’) and the fourth defendant (‘GTE’) are for:
(a) declarations that they were each knowingly involved in the contraventions of Jesse and Daniel;
(b) damages or an account of profits;
(c) injunctions restraining them from improperly using any information obtained as a result of Daniel and Jesse being officers of the plaintiff; and
(d) delivery up on oath to the plaintiff for destruction all documents constituting information which each of Daniel and Jesse obtained by reason of their position with the plaintiff.
Daniel and Jesse admit:
(a) that they owed fiduciary duties to the plaintiff to act in good faith and for its benefit and to avoid conflicts of interest and duty; and
(b) that as directors of the plaintiff they were bound by the duties set out in ss 180, 181, 182 and 183 of the Act.
In substance those directors duties are:
(a) to exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director or officer of the plaintiff in its circumstances and occupied the office held by, and had the same responsibilities within the plaintiff as, the director or officer (s 180);
(b) to exercise their powers and discharge their duties in good faith in the best interests of the plaintiff and for a proper purpose (s 181);
(c) not to improperly use their positions as directors or officers of the plaintiff to gain an advantage for themselves or for someone else and/or to cause detriment to the plaintiff (s 182); and
(d) not to improperly use information which has been obtained because they are or have been directors or other officers or employees of the plaintiff to gain an advantage for themselves or someone else or cause detriment to the plaintiff (s 183).
Yogulatte was incorporated on 10 March 2014 and its shareholders are GTE and one Mr Weisheng Guo (‘Guo’). GTE is a 50% shareholder in Yogulatte. The sole director and shareholder of GTE is Jesse. It is pleaded against Yogulatte, and denied, that it is the operator and owner of the Yogulatte business in Australia and China.
It is alleged that whilst Daniel and Jesse were directors and officers of the plaintiff they entered into negotiations with Guo with a view to establishing a business in direct competition with the plaintiff’s business in Australia and China. It is alleged that in about October or November 2013 Jesse entered into an agreement with Guo under which Jesse agreed to make available to Guo his know-how and knowledge of establishing, marketing and operating a frozen yoghurt and coffee business on terms that the know-how was valued at $200,000.00, a company would be registered to carry on the new business, Guo would pay Jesse $100,000.00 and Jesse would own 50% of the shares in the new company which was to be named Yogulatte and would specialise in the sale of frozen yoghurt and coffee products.
Jesse admits in his defence that Guo approached him in around 2013 in relation to Guo’s interest in establishing a yoghurt business in China but says that that interest was disclosed to Mr Jonathan Loe, the principal remaining director of the plaintiff, and that the business has not operated in any way. Jesse further admits that a draft agreement was prepared in which it was proposed that he would agree to make available to Guo his know-how for a proposed business involving yoghurt and coffee but says that the agreement was not entered into. Moreover, although Yogulatte was established as a company, it has not traded and it is proposed to be deregistered. Further, Counsel for the defendants pointed out that it was impossible for a business in China to directly compete with the plaintiff’s business, which was limited to franchises in Australian and was presently confined to Victoria.
The plaintiff claims that Daniel and Jesse used information and documentation obtained by reason of their positions at the plaintiff, including such things as recipes, product mixes, supplier details, ingredient types, a menu and operations manual, and used these documents for their benefit and in establishing marketing and conducting the business of Yogulatte. Daniel and Jesse admit that they used unspecified information and documentation obtained from the plaintiff for the purpose of evaluating a proposed business involving yoghurt and coffee but say that the outcome of the evaluation was that the proposed business was not viable and the business has not traded in China or elsewhere.
There are other claims made relating to enquiries received from Olivia Chen in about December 2013. She wanted to run a Cacao Green franchise in China. Her enquiry was referred to Jack Wu (‘Wu’) by Daniel who stated to Mr Wu that Ms Chen seemed to be a good candidate for a Yogulatte franchise. Both Daniel and Jesse admit the enquiry from Ms Chen but say that they had not operated any business involving yoghurt or any other business with Ms Chen in China or elsewhere.
The plaintiff pleads that in or about 2014 Yogulatte opened a store in China and that plans were in place to locate and open a store in Adelaide. The defendants deny this and their evidence, by the affidavit of Daniel, supports this denial.
The plaintiff’s application is supported by the affidavits of Mr Loe sworn 8 April 2016, 10 May and 11 May 2016. The defendants oppose the application and rely upon the affidavit of Daniel sworn 5 May 2016.
Summary Judgment Procedure
Section 61 of the CPA provides that a plaintiff in a civil proceeding may apply to the Court for summary judgment in the proceeding on the ground that a defendant’s defence or part of that defence has no real prospect of success. Section 63 of the CPA provides that, subject to s 64, a Court may give summary judgment if satisfied that a defence or part of a defence has no real prospect of success. Section 64 is referred to further below.
Rule 22.03 of the Rules provides that an application under s 61 by a plaintiff for summary judgment shall be made in accordance with Part 2 of Order 22. Rule 22.04 requires such an application to be made by summons supported by an affidavit:
(a) verifying the facts on which the claim or the part of the claim to which the application relates is based; and
(b) stating that in the belief of the deponent, the defence to the claim or the defence to the relevant part of the claim:
(i) has no real prospect of success; or
(ii) has no real prospect of success except as to the amount of the claim or as to the amount of the relevant part of the claim.
Other provisions of Part 2 of Order 22 relate to the evidence that may be admitted, including evidence on information and belief if the grounds are set out and, having regard to all the circumstances, the Court considers that evidence ought to be permitted.[2] The Rules also provide that the defendant may show cause against the application by affidavit or otherwise to the satisfaction of the Court. Such an affidavit may contain statements of fact based on information and belief if the grounds are set out.[3]
[2]r 22.04(3) of the Rules.
[3]r 22.05 of the Rules.
The powers of the Court on the hearing of the application are, subject to Part 4.4 of Chapter 4 of the CPA, to dismiss the application, give such judgment for the plaintiff as is appropriate or give the defendant leave to defend with respect to the claim or a part of it. In giving leave to defend, the Court may impose conditions or terms as to the giving of security, the paying of money into Court and other matters.[4]
[4]r 22.08 of the Rules.
This procedure liberalises the rules governing summary judgment in Victoria, such that it is easier to dispose of unmeritorious claims or defences summarily. The Court of Appeal has stated that the test:
[S]hould be construed as one of whether the respondent to the application for summary judgment has a ‘real’ as opposed to a ‘fanciful’ chance of success; that the ‘real chance of success’ test is to some degree a more liberal test than the ‘hopeless’ or ‘bound to fail’ test; and that, as the law is at present understood, the real chance of success test permits of the possibility that there may be cases, yet to be identified, in which it appears that, although the respondent’s case is not ‘hopeless’ or ‘bound to fail’, it does not have a real prospect of succeeding.[5]
[5]Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSCA 158 at [29] per Warren CJ and Nettle JA (Neave JA agreeing).
The test must be applied according to its own terms and not according to considerations of whether the proceeding is ‘hopeless’ or ‘bound to fail’. To adopt ‘an unduly constrained, historical approach to the construction of s 63’ would ‘subvert the purpose of the provision’.[6]
[6]Ibid, at [25] per Warren CJ and Nettle JA (Neave JA agreeing).
Courts must, however, continue to exercise the power to terminate proceedings summarily with caution. Courts should therefore only exercise the power if it is clear that there is no real question to be tried. This is so, irrespective of whether an application for summary judgment is made on the basis that: the pleadings do not disclose a reasonable cause of action, and no amendment could cure this error; or the action is frivolous, vexatious or an abuse of process; or the application for summary judgment is supported by evidence.[7]
[7]Ibid, at [35] per Warren CJ and Nettle JA (Neave JA agreeing).
The power to give summary judgment must be exercised in accordance with the overarching purpose of the CPA and taking into account the fact that, if granted, a party will be deprived of the chance to pursue its claim or defence.[8] If there is no real prospect of success, a court may nevertheless allow a matter to proceed to trial if:
(a)it is not in the interests of justice to summarily dispose of the proceeding;[9] or
(b)the dispute is of such a nature that only a full hearing on the merits is appropriate.[10]
[8]Ibid, at [42] per Neave JA).
[9]s 64(a) of the CPA.
[10]s 64(b) of the CPA.
Whether a proceeding should be allowed to go to a full hearing on the merits must be determined according to the circumstances of each case.[11]
[11]Barber v State of Victoria [2012] VSC 554 at [15].
Consideration
In the affidavits in support of the application sworn by Mr Loe, it is established that the first and second defendants were directors and officers of the plaintiff as pleaded and that during the period of their occupation of those offices they did the things I have referred to above, including using documentation and information obtained by virtue of their position as directors and officers of the plaintiff in the development of plans to establish the business of Yogulatte. Importantly, however, it is not established, as pleaded that the Yogulatte business was actually established and that a store was opened in China as alleged.[12]
[12]The allegation is in paragraph 15 of the statement of claim.
The affidavit sworn by Daniel shows that for the purposes of this application neither Yogulatte nor GTE ever traded. They were incorporated as part of a proposed business that was discussed but never actually pursued. It is explained that these business opportunities were explored as a result of the conduct of Mr Loe and people related to him. It is alleged that Daniel and Jesse were forced out of the plaintiff by the conduct of Mr Loe, his wife and mother-in-law.
There were difficulties in the operation of the plaintiff’s business arising out of relationships between Daniel and Jesse, on the one part, and Mr Loe and his wife and mother-in-law, on the other part. The business did not go well because of absences of Mr Loe ( and his brother) and financial difficulties. Ultimately there was a meeting in December 2014 in which Daniel and Jesse suggested the plaintiff be wound up because it had too much debt. Mr Loe’s mother-in-law proposed that Daniel and Jesse and Mr Loe all sell their shares to her company. The company through which Daniel and Jesse had invested in the plaintiff sold its shares to Alnathan Capital Pty Ltd, a company controlled by Mr Loe’s mother-in-law. That transfer of shares was apparently signed and dated 28 November 2014. From that time onwards, Daniel and Jesse were not involved in the operations of the plaintiff.
In relation to the admission by Daniel and Jesse of using documents and information obtained by them in the course of their directorships of the plaintiff for the purposes of establishing a like business to that operated by the plaintiff, but in a different jurisdiction, Counsel for the defendants submitted that on his clear instructions the admission was wrongly made and that the information used was publicly available information. He sought leave to apply to amend the defences to withdraw the admissions.
In addition, there are significant disputes of fact between the plaintiff and the defendants regarding their respective roles and duties in the operations of the plaintiff, whether Mr Loe knew of the approaches that had been made to Daniel and Jesse relating to establishing franchises in China (and perhaps gave his tacit consent) and a range of other matters that may be relevant to the claims made by the plaintiff.
Strictly speaking, the plaintiff has failed to verify the facts upon which a part of its claim is based; namely its claim that in 2014 a Yogulatte store was opened in China. It seems tolerably clear that no such store was ever established. It also seems clear that the businesses investigated by Daniel and Jesse were never established. In addition, there are the following issues:
(a) the issues of breach of duty sought to be raised by the proposal to amend the defences;
(b) the issue raised by Daniel and Jesse’s fellow director, Mr Loe, having knowledge of, and perhaps giving his tacit consent, to the investigations of the viability of another similar business (but not operated in competition with the plaintiff); and
(c) the issue whether the defendants’ conduct has caused the plaintiff any damage other than nominal damage.
The affidavit of Daniel shows that there is a great deal of material to be investigated before it can be established that any of the defendants have caused or are liable for damage to the plaintiff.
On the plaintiff’s affidavit material it seemed quite clear that Daniel and Jesse have, in breach of their fiduciary and directors duties, used information obtained by them as directors and officers of the plaintiff for the purpose of investigating the establishment of another business of a similar kind to that operated by the plaintiff. Now the defendants seek to withdraw that admission. Even if they do not, because the postulated business was never likely to be competitive with the plaintiff’s business and had never started, the relief available to the plaintiff will be limited to damages and delivery up of any documentary information for destruction. The defendants contend that in the circumstances the damages will be nominal.
The defendants submit that, on the basis of the decision of Bell J in Actrol Parts Pty Ltd v Coppi (No 3)[13] that prosecution of this the proceeding by the plaintiff involves a contravention of the plaintiff’s overarching obligation to ensure costs are reasonable and proportionate to the issues and amounts in dispute, and that ultimately, after all is said and done, the proceeding should be dismissed under ss 28(1) and 29(1) of the CPA. It is not possible at this point to conclude one way or the other whether this contention can succeed, but in light of the defendants’ evidence thus far, it is possible.
[13][2015] VSC 758 particularly at [72]-[85].
In addition to amending their defences to withdraw the admissions referred to above, the defendants seek to claim pursuant to s 1318 of the Act that they acted honestly and having regard to all the circumstances of the case ought fairly to be excused any contravention of their directors duties. The affidavit of Daniel shows a tangled web of relationships between the directors of the plaintiff and a course of events that requires investigation before the Court can be satisfied that there have been clear breaches of duty by Daniel and Jesse.
In all the circumstances of this case, the complexity of the factual circumstances giving rise to the plaintiff’s claims and the complexity of the issues now intended by the defendants to be raised, makes this case inappropriate for summary judgment. This is a case where it is not clear that there is no real question to be tried. I consider that there are matters to be investigated before it can be concluded with any certainty that liability for the relief that is the central issue, damages, can be established. Further, the dispute is of such a nature that only a full hearing on the merits is appropriate.[14] I will therefore order that the defendants have leave to defend the plaintiff’s claims.
[14]See s 64(b) of the CPA.
In the course of argument it became clear that the defendants’ defences must be amended, both to withdraw the admissions, if leave is given, and to plead the facts relevant to the claim under s 1318 of the Act, and to raise other defences. Clearly the existing defences must be struck out. It also became clear that the plaintiff will need to amend its statement of claim, if only to amend its allegation that in 2014 a Yogulatte store was opened in China.
In those circumstances, it is appropriate to order that a proposed amended statement of claim and proposed amended defences be filed and served.
In relation to the costs of the proceeding, the fact that Daniel and Jesse admitted using information and documentation from the plaintiff for the purpose of evaluating a proposed business, an admission they will seek to withdraw, acted as an invitation to apply for summary judgment. The proposed withdrawal of those admissions, and the proposed defence based on s 1318 of the Act, significantly changed the ‘terrain’ of the application. The result is that the defences must be struck out and that is success to a degree for the plaintiff. In all of the circumstances I consider that the plaintiff should have the costs of it summons filed on 16 March 2016.
SCHEDULE OF PARTIES
| BETWEEN: | |
| GOLDEN TASTE INVESTMENT PTY LTD (ACN 142 746 316) | Plaintiff |
| - and - | |
| DANIEL LAURENCE | First Defendant |
| JESSE OCTAVIANO | Second Defendant |
| YOGULATTE INTERNATIONAL GROUP (ACN 168 459 809) | Third Defendant |
| GOLDEN TASTE ENTERPRISE PTY LTD (ACN 168 069 010) | Fourth Defendant |
0
2
0