| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : GRANT -v- VELZEN [2013] WADC 16 CORAM : SWEENEY DCJ HEARD : 24 AUGUST 2012 DELIVERED : 8 FEBRUARY 2013 FILE NO/S : CIV 3221 of 2011 BETWEEN : JOHN GRANT Plaintiff
AND
JULIE VELZEN
First defendant
PETER VELZEN
Second defendant
Catchwords: Pleadings - Proposed substituted statement of claim - Failure to disclose cause of action Legislation: Nil Result: Appeal allowed
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</Order> Representation: Counsel:
Plaintiff : Mr P J Hannan
First defendant : Mr G J Carter
Second defendant : Mr G J Carter
Solicitors:
Plaintiff : Paul Fletcher & Co
First defendant : Aherns Lawyers
Second defendant : Aherns Lawyers
Case(s) referred to in judgment(s):
Agip (Africa) Ltd v Jackson [1990] Ch 265
Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82
Kimberley Downs Pty Ltd v Western Australia (Unreported, WASC, Library No 6414, 25 August 1986)
Searle v Western Australian Newspaper Holdings Ltd [2004] WASC 11
Stray v Russell (1860) 28 LJQB 279
Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2006] WASC 161
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Introduction 1 This is the defendants' appeal from the decision of a registrar of this court giving the plaintiff leave to file a substituted statement of claim. For reasons which appear below I uphold the appeal and hence deny the plaintiff leave to file his minute of proposed substituted statement of claim and have it stand as the statement of claim. I would not however deny the plaintiff the opportunity to propose another draft.
The pleadings filed so far 2 To follow the current proposed substituted statement of claim, it is necessary to go into the history of the pleadings filed so far. 3 The plaintiff's original statement of claim, filed with the writ on 7 October 2011, was straightforward enough. The two defendants, Julie and Peter Velzen, are husband and wife. The plaintiff, John Grant, is the uncle of Julie Velzen. The statement of claim pleaded that, in 2009, the Velzens planned to establish a restaurant called the 'Fishmonger Seafood Restaurant' in Northbridge and that, by an oral agreement made on or about 24 November 2009, the plaintiff agreed to loan both defendants the sum of $110,000 for that purpose, it being an express term of the agreement that the loan would be repayable on demand. It was said against the second defendant, Mr Velzen, that at all times Mrs Velzen had been acting both on her own behalf and as agent on his behalf. 4 It was further pleaded that the $110,000 was paid into a particular Westpac Bank account at the request of the Velzens, that account believed to be an account in the name of a company known as Investment Syndicate Pty Ltd as trustee for the Fishmonger Unit Trust trading as Fishmonger Seafood. It was pleaded that Mrs Velzen was the sole shareholder, director and secretary of that company. Finally, it was pleaded that the loan remained unpaid, despite demand. 5 The defence, filed 31 October 2011, was also straightforward. The defendants admitted that they planned to establish the said restaurant and that the plaintiff had provided the sum of $110,000, but denied that the money was a loan and characterised it instead as an investment in 'the Business', presumably using that term as it was pleaded in the statement of claim to mean the restaurant. The defence pleaded that the restaurant was owned by Investment Syndicate Pty Ltd. Mrs Velzen (Page 4)
denied that she was a director or secretary of that company but admitted being a shareholder. 6 The defence further pleaded that, on 30 September 2009, Mrs Velzen emailed certain prospective investors (not the plaintiff) inviting investment as a syndicate and offering five 10% shares worth $50,000 each. The defence implied those shares were to be in the Fishmonger Unit Trust, which was created by a document signed on 13 October 2009 and signed by Mrs Velzen. As part of the email to prospective investors Mrs Velzen stated that she expected an approximate 40% return on the investment in the first year and that Mr and Mrs Velzen intended selling the restaurant in two years, at which stage it was expected the investors would receive 10% of the net sale price. 7 The defence further pleaded that, after that email was sent out to various prospective investors, the plaintiff approached them and requested a 20% investment in the business and then did invest $110,000, which was paid by the plaintiff to Investment Syndicate Pty Ltd as trustee for the Fishmonger Unit Trust trading as Fishmonger Seafood. In return, the plaintiff is said to have received two shares in the unit trust and was supposed to be provided with sch 1 of the unit trust deed to sign, but that did not eventuate due to the time taken to draft the trust deed. The plaintiff was, however, said to have been provided with monthly shareholder reports. The defence pleaded that Investment Syndicate Pty Ltd went into liquidation on 15 October 2010. 8 Investment Syndicate Pty Ltd is not a party to this action. In essence the defence pleaded that the plaintiff made an investment into that company and the investment has failed and the defendants are not liable to the plaintiff for the money invested. That is the key issue in the case. 9 In November 2011 the plaintiff requested further and better particulars of the defence which were provided by letter dated 27 January 2012. Also, on 18 November 2011, the plaintiff replied to that defence and joined issue with its contents. The reply set up an estoppel. 10 The plaintiff pleaded that, by email dated 30 April 2010, Mr and Mrs Velzen stated that they wanted to sell the business and repay the plaintiff in full and 'preferred to view the plaintiff not as an investor but would view the sum paid by the plaintiff as a loan so that the defendants could repay the loan in full'. By email from the defendants dated 19 August 2010 they apparently indicated they would be able to pay $90,000 to the plaintiff by 1 September 2010 and the balance of $20,000 (Page 5)
within six weeks after that. By subsequent email of 18 October 2010 Mrs Velzen is said to have then explained that they would be unable to repay the $110,000 as promised. That email of 18 October 2010 was sent three days after the company went into liquidation. By later email of 18 January 2011, Mrs Velzen is said to have stated that, as soon as she and her husband sold their apartment, they would repay the $110,000 back to the plaintiff. 11 The plaintiff pleaded that the representations in these emails were made with the intention that he would rely upon them 'when deciding whether or not to take action to seek repayment of $110,000 from the Defendants'. The plaintiff pleads that he 'delayed taking action against the defendants' to seek recovery of the money and thereby suffered detriment because he had borrowed the money advanced. Consequently, the plaintiff pleaded in his reply, the defendants are estopped from denying the existence of the loan agreement and from alleging that the $110,000 was an investment into Investment Syndicate Pty Ltd and/or the Fishmonger Unit Trust and estopped from denying liability. 12 On 21 February 2012 the matter was entered for trial. 13 On 28 March 2012 an amended statement of claim was filed. After correspondence between the parties, the defendants filed a chamber summons seeking orders that pars 5, 8 and 9 of that amended statement of claim be struck out on the basis that they disclosed no reasonable cause of action, were frivolous, vexatious or an abuse of process. 14 The amendment to par 5 was unremarkable in that it simply added to the existing pleading an alternative allegation that, if it was not an express term of the loan agreement that the loan would be repayable on demand, then it was an implied term. It is generally accepted at law that, in the absence of an express term as to repayment, a loan is repayable on demand. 15 Paragraphs 8 and 9 however added new causes of action. Paragraph 8 asserted that the plaintiff's claim 'is for money paid by the plaintiff for the defendants and at their request'. This was an alternative claim referring presumably to the fact that the money was paid into a specific bank account linked to the company and so the plaintiff, I gather, wished to guard itself against an argument that any loan was to Investment Syndicate Pty Ltd, rather than the defendants personally. 16 Paragraph 9 added an alternative claim 'for money had and received by the defendants for the use of the plaintiff'. The particulars provided (Page 6)
were to the effect 'the plaintiff paid $110,000 to the defendants as pleaded in paragraph 7 above to be applied to payment for a 20% interest or share in a Business to be established by the defendants to be known as the Fishmonger Restaurant, alternatively to subscribe for two units to issue to the plaintiff of the Fishmonger Unit Trust, the consideration for which has wholly failed'. 17 Following the defendants' application to strike out those paragraphs of the amended statement of claim, and before that argument was heard, the plaintiff filed his minute of proposed substituted statement of claim dated 25 May 2012. The hearing was adjourned to 22 June 2012 at which the defendants likewise opposed the new proposed statement of claim. 18 The plaintiff accepts that leave should not be given to substitute that new statement of claim if it would be liable to be struck out. Leave was given by Registrar Harman on 22 June 2012 with certain consequential orders as to the filing of a substituted defence and any substituted reply. It is against that decision which the appellant now appeals and that brings me to the current argument. The appeal being from a registrar of this court, it is not necessary for the defendant to establish error on the part of the registrar. The matter is before me afresh. 19 In essence then, I am deciding whether this proposed substituted statement of claim is liable to be struck out.
Legal principles in relation to strike-out applications 20 The court may strike out a pleading if it discloses no reasonable cause of action, or is scandalous, frivolous or vexatious, or if the pleading may prejudice, embarrass or delay the fair trial of the action, or if it is otherwise an abuse of process of the court: O 20 r 19(1) of the Rules of the Supreme Court 1971 (WA). The defendants argue that some aspects of the proposed substituted statement of claim disclose no reasonable cause of action, and/or may prejudice, embarrass or delay the fair trial of this action. 21 In Kimberley Downs Pty Ltd v Western Australia (Unreported, WASC, Library No 6414, 25 August 1986) Master Staples summarised the general principles to be applied in a strike-out application (6 - 7): (1) The rule is intended to apply only to cases which are really not arguable and not to cases where under the previous practice demurrer would have been the proper course: Packard v Transport Trading and Agency Co Ltd (1912) 14 WALR 191 per Burside J at 195. (Page 7)
(2) On the application, not only must all the facts alleged in the statement of claim be accepted as true, but it must be taken for granted that on all other points the pleading is unassailable: Niven v Grant (1903) 29 VLR 102 per Holroyd J at 106. (3) Great care must be exercised to ensure that the plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal: General Steel Industries Inc v Commissioner for Railways NSW (1964) 112 CLR 125 at 130. (4) The rule should not be reserved for those cases where argument is unnecessary to show the futility of the plaintiff's claim. Argument, even extensive argument, may be necessary to demonstrate that the plaintiff's case is so clearly untenable that it cannot succeed: General Steel Industries Inc v Commissioner for Railways NSW (1964) 112 CLR 125 at 130. (5) As a general rule, a plaintiff is 'entitled … as of right to have his case heard, to have the facts found and then to argue the question of law as it arises before the trial judge upon the facts as found. It is only in cases in which it can be seen from the outset that, however the facts be found, there is no basis for the legal conclusion contended for by the plaintiff that the pleading should be struck out: Dalgety Australia Ltd v Rubin (Unreported, WASC, Lib No 5485, 24 August 1984, per Burt CJ). (6) A court at first instance should be careful not to risk stifling the development of the law by summarily rejecting a claim where there is a reasonable possibility that, as the law develops, it will be found that a cause of action will lie: Hospitals Contribution Fund of Australia v Hunt (1983) 44 ALR 365 per Master Allen. 22 This appeal of course does not involve the striking out of the plaintiff's claim in its entirety nor depriving the plaintiff of his right to be heard, but is confined to his latest attempt to broaden his case. 23 The modern view of the courts is to discourage the taking of technical points or the making of pedantic arguments on objection to points of pleading, where 'the time and expense involved in the consideration and resolution of the interlocutory dispute is entirely disproportionate to its significance to the just and effective resolution of the case': Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2006] WASC 161 [2] (Martin CJ). In Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82, Martin CJ stated: It is, I think, important when approaching an issue of that kind to bring to mind the contemporary purposes of pleadings. The purposes of pleadings (Page 8)
are, I think, well known and include the definition of the issues to be determined in the case and enabling assessment of whether they give rise to an arguable cause of action or defence as the case may be, and apprising the other parties to the proceedings of the case that they have to meet. In my view, the contemporary role of pleadings has to be viewed in the context of contemporary case management techniques and pre-trial directions. In this Court, those pre-trial directions will almost invariably include; firstly, a direction for the preparation of a trial bundle identifying the documents that are to be adduced in evidence in the course of the trial; secondly, the exchange well prior to trial of non-expert witness statements so that non-expert witnesses will customarily give their evidence-in-chief only by the adoption of that written statement; thirdly, the exchange of expert reports well in advance of trial and a direction that those experts confer prior to trial; fourthly, the exchange of chronologies; and fifthly the exchange of written submissions. Those processes leave very little opportunity for surprise or ambush at trial and, it is my view, that pleadings today can be approached in that context and therefore in a rather more robust manner, than was historically the case; confident in the knowledge that other systems of pre-trial case management will exist and be implemented to aid in defining the issues and apprising the parties to the proceedings of the case that has to be met. In my view, it follows that provided 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, the Court ought properly be reluctant to allow the time and resources of the parties and the limited resources of the Court to be spent extensively debating the application of technical pleadings rules that evolved in and derive from a very different case management environment [4] - [7]. 24 Earlier in Searle v Western Australian Newspaper Holdings Ltd [2004] WASC 11, Master Newnes stated [7]: … as this case illustrates, strike-out applications are necessarily productive of significant delay, and inevitably of expense, to the parties and should be reserved for those cases where real difficulty arises from a pleading or it is plainly untenable. While it is necessary that the pleadings clearly identify the matters in issue between the parties, a party should not be too ready to be embarrassed by the form of a pleading. Nor should a strike-out application be used where any difficulty could be, or could have been, adequately overcome by a request for further and better particulars. 25 None of these comments however were intended, I think, to communicate to lawyers in this State that the rules of pleading have become obsolete or old-fashioned, or that efforts to produce clear pleadings which can be readily comprehended by both the opposing side and the court are efforts wasted. It is still essential, adopting the words of (Page 9)
Martin CJ in Barclay Mowlem Construction Ltd v Dampier Port Authority quoted above, that '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'.
Difficulties with the proposed substituted statement of claim 26 In argument before me the defendants were prepared to limit their opposition to the proposed substituted statement of claim to certain specified paragraphs but, during the course of argument, it was effectively agreed between all parties that, if I were not prepared to grant leave to the plaintiff to substitute his new statement of claim in its entirety, then justice would be better served by simply refusing leave, giving the plaintiff the ability to re-apply with a new minute of proposed statement of claim. That is the preferable course, particularly given that the defendants' opposition remains substantial. 27 The first 21 paragraphs of the proposed substituted statement of claim are not in substance objected to, although they are criticised by the defendants. They contain allegations which are unnecessary and ought not to be in a statement of claim and which unnecessarily complicate the process of the trial and cause unnecessary difficulty for the trial judge. Of themselves, they do not render the plaintiff's case unintelligible but, as I have taken the view that leave should not be given for this proposed substituted statement of claim in its entirety, then I hope it is helpful to the plaintiff for me to set out my criticisms of the first 21 paragraphs of the proposed statement of claim in the event that the plaintiff does propose a further substituted statement of claim. 28 Paragraph 5 asserts that Mrs Velzen was the sole shareholder in Investment Syndicate Pty Ltd and provides, by way of particulars, that the original statement of claim alleged she was the sole shareholder and that was admitted by par 1 of the original defence. Those particulars are entirely unnecessary and amount to both evidence, in that the plaintiff relies upon the defence as an admission, and also refer to prior pleadings which will be rendered redundant if the statement of claim is substituted, causing unnecessary confusion and a need to refer back to earlier documents. When the papers for the judge are filed, they will not contain these superseded pleadings which are relied upon in the statement of claim and the need to refer back to them places an undue burden on the parties and the court. (Page 10)
29 Paragraph 6 pleads that there was in existence the Fishmonger Unit Trust established by deed of 13 October 2009. By way of particulars the plaintiff refers to a particular document in Mr Velzen's affidavit of discovery. The particulars are simply unnecessary in that they refer to evidence as to how the material fact of the existence of the trust is to be established. It is sufficient to refer to the deed itself, assuming there is only the one such deed of that date and description. 30 Paragraph 7 of the statement of claim pleads that, at all material times, Investment Syndicate Pty Ltd was the trustee of the Fishmonger Unit Trust. By way of particulars the plaintiff repeats earlier unnecessary particulars and further refers to the contents of the deed and the manner in which it was executed. Those particulars are simply unnecessary and amount to a combination of both evidence and legal submission. 31 Paragraph 8 is unobjectionable. 32 Paragraph 9 pleads that, on or around 24 November 2009, an oral agreement was made between the plaintiff and Mr and Mrs Velzen whereby the plaintiff agreed to lend money to them both for the purpose of establishing the business. Before I deal with the particulars, par 10 goes on to plead that the agreement contained an express term that the plaintiff would advance by way of loan $110,000 to both defendants and that it also contained an implied term that both would be jointly and severally responsible for the repayment of that loan. 33 Paragraph 11 sets up an alternative oral agreement made between the plaintiff and Mrs Velzen only, whereby the plaintiff agreed to lend money to both Mr and Mrs Velzen. Again, leaving aside the particulars of par 11 for the moment, par 12 asserts that that agreement contained an express term that the plaintiff would advance $110,000 by way of loan to both defendants and an implied term that Mrs Velzen alone would be responsible for the repayment of the loan. 34 Returning back to par 9, a convoluted set of particulars are provided. These are supposed to be particulars of the oral agreement made between the plaintiff and Mr and Mrs Velzen whereby the plaintiff agreed to lend money to them both, but the particulars instead deal with the allegation that Mrs Velzen had authority to enter into the oral agreement on behalf of her husband. All that is provided by way of asserting that agency is an assertion that Mrs Velzen participated on her own behalf and on behalf of her husband (which begs the question) and that the existence of her authority is to be inferred from the fact that the defendants were married (Page 11)
and that both desired to establish the restaurant and that Mr Velzen subsequently worked in the business. 35 One of the defendants' criticisms is the inadequacy of the particulars said to give rise to the alleged agency. There is some merit in the defendants' submission but I also accept the plaintiff's submission that these matters are more within the knowledge of the defendants than the plaintiff and are likely to be the subject of evidence during the trial where there will be greater opportunity to clarify the matter. It is highly unlikely that this issue will lead to trial by ambush. There is sufficient basis in the assertion that the defendants are husband and wife and wanted to establish the restaurant together and worked in the business together to allow of a possible inference of agency, although that may well not be the only inference available on those bare facts. Certainly if there is any more to the assertion of agency, such as a potential holding out to that effect, it should be pleaded as part of the particulars to that material fact alleged. 36 Paragraphs 9 and 11 therefore set up two distinct agreements in the alternative, the first being an agreement with both defendants and the second being an agreement with Mrs Velzen only. That dichotomy is repeated throughout the statement of claim in a way is both unnecessary and confusing. I hope I have made it clear that I would not, on this basis alone, have refused leave for this proposed statement of claim to stand as the new statement of claim, but if there is to be a new draft, then the pleadings can be simplified to the good of the parties and the court. 37 It would be much simpler to follow if there were an assertion at the outset that, at all relevant times, Mrs Velzen acted on her own behalf and on behalf of her husband, so that the alleged agency is pleaded as a material fact to which the defence are obliged to plead. 38 The defendants are not obliged to plead to particulars and, as the proposed statement of claim currently stands, the allegation of agency is a mere particular and a somewhat convoluted one at that. 39 If there were to be an assertion as a material fact that, at all material times, Mrs Velzen acted in her own right and as agent for her husband and the particulars were then to deal exclusively with the fact of the alleged agency, the alleged oral agreement could then be asserted as being the agreement which was reached either with Mr and Mrs Velzen or, in the alternative, with Mrs Velzen alone. 40 It would be readily apparent from such a pleading, which would be significantly shorter, that the plaintiff seeks to establish liability against (Page 12)
both defendants but that, if he fails, he seeks to establish liability against Mrs Velzen alone. 41 Those particulars to these paragraphs also contain legal submissions which ought not to be in a pleading, such as: A loan has to be repaid by someone. In the circumstances that could only be the other parties to the Agreement (i.e. Mrs Velzen and Mr Velzen). and: If, however, the court finds that Mrs Velzen participated in that conversation solely on her own behalf, then there is in law an agreement between the plaintiff and Mrs Velzen. 42 Paragraph 13 pleads that Mrs Velzen requested the plaintiff to pay the money into a specific Westpac Banking Corporation bank account. That paragraph is unobjectionable. 43 Paragraph 14 pleads that Mrs Velzen made that request on behalf of herself and Mr Velzen, again providing similar particulars as those provided earlier, and then par 15 goes on to plead that, alternatively to par 14, she made the request on behalf of herself. Again, this complex way of pleading the matter becomes unnecessary if, early in the statement of claim, the material fact were to be asserted that at all times Mrs Velzen acted on her own behalf and on behalf of her husband, with adequate particulars of that agency, followed by a paragraph asserting that, in the alternative, she acted on her own. 44 Paragraphs 16 to 21 are generally unobjectionable except that, were the plaintiff to adopt my comments in relation to the structure of the pleading, their form may change. 45 In relation to those paragraphs that I have just referred to, there is no great difficulty in understanding the plaintiff's claim but, if a new statement of claim is to be drafted, it would be of great assistance to the parties and the court if a less complex structure were adopted deleting reference to unnecessary evidence and legal submissions and setting up early, as a general proposition which applies to the entire statement of claim, that Mrs Velzen was acting in her own right and as her husband's agent or, in the alternative, on her own behalf. 46 I now come to pars 22 to 32 to which the defendants particularly object. My overall comment in relation to these pars as a whole is that they do, with respect, fall short of achieving the basic functions of a (Page 13)
pleading, in that they fail to define the issues between the parties, fail to disclose an arguable cause of action and fail to apprise the defendants of the case they have to meet. Even allowing that the court should take the facts asserted in the statement of claim at their highest in determining whether the pleading discloses a cause of action, one of the issues with this pleading is its failure to plead those facts. In addition, because of a general tendency to refer back to pleadings which will, if the statement of claim is substituted, become redundant, they present an unnecessary difficulty for the trial judge. 47 Notwithstanding that this interlocutory argument has added time to the proceedings, and notwithstanding the general reluctance of the courts nowadays to entertain technical arguments about pleading points, it is in the interests of the plaintiff, the defendants and this court that the statement of claim, if it is to be substituted, clarify the case which the plaintiff intends to present. 48 Dealing with these pars specifically now, par 22 is simply an introductory paragraph asserting that if, which is denied, there was not an agreement as pleaded earlier in the statement of claim, then the plaintiff pleads as per pars 23 to 30. The paragraph is both unnecessary and also introduces the reader to a statement of affairs which the plaintiff announces he denies. The paragraph is pointless. I suspect the reason it is there is because the plaintiff's legal representatives were self-conscious about the fact that the pleadings which follow are not the plaintiff's primary contention and may well not be reflected in any evidence he has to give. I will deal with that aspect shortly. 49 Paragraphs 23 and 24 assert, in the alternative, that the plaintiff paid $110,000 to Investment Syndicate Pty Ltd at the request of both defendants or, in the alternative, Mrs Velzen alone. On their face, I did not understand the plaintiff to be asserting an independent cause of action, but rather reinforcing his assertion that he loaned the money to the Velzens and simply paid it into a specified bank account to another entity at their direction (in the same way that a settlement agent distributes the purchase price to the vendor but, in practical terms, disburses some of that money to various bodies at their direction). The point of such a pleading, I surmised, was to attempt to avoid an argument that the true defendant ought to be Investment Syndicate Pty Ltd. The plaintiff's entire claim is based on the premise that his contractual dealings were with the Velzens personally or Mrs Velzen alone and not with the company. (Page 14)
50 In submissions, however, the plaintiff clarified that these paragraphs do assert a distinct cause of action, though just what that cause of action is remains elusive. The plaintiff submits that it is possible for a payment by A to B to give rise to a money count debt between A and C, and so much may be accepted, but it is unclear on what basis that obligation on the part of the Velzens to repay the money paid to the company account is said to arise, whether on the basis of agreement, or an undertaking on their part, or unjust enrichment or some other basis. The defendants can plead to the paragraphs as such, but without understanding what the pleading is supposed to achieve, the defendants' response can only be superficial. 51 The plaintiff submits that, given that he is going to trial anyway in relation to his primary position that he loaned the money to the Velzens, there is nothing to be achieved by attacking his pleading. But the defendants have a right to understand the case they have to meet and the addition of vague causes of action require the defendant to anticipate potential legal argument, involving extra and possibly unnecessary legal research, and may also cause the defendants to lead evidence which might not otherwise be led concerning the company. A failure to define the issues now may well add to the costs of the trial. It will also add to the difficulties of the task facing the trial judge in reaching judgment. 52 Paragraph 25 simply pleads that the defendants have denied the existence of the loan agreement. It achieves nothing more than to summarise the effect of a pleading which will become redundant once a new statement of claim is filed. The particulars provided in support of that proposition refer to certain paragraphs of the original defence and also a letter sent from the defendants' solicitors to the plaintiff's solicitors. The particulars are also unnecessary for a similar reason and on the basis that they amount to evidence. 53 Paragraph 26 asserts that the plaintiff has never been issued with any shares in Investment Syndicate Pty Ltd. Of itself that assertion is unobjectionable. The particulars provided in support of it however are unnecessary and refer to the defendants having made an admission to that effect in their pleadings. 54 Paragraph 27 asserts the plaintiff has never been issued with any units in the Fishmonger Unit Trust. Of itself that assertion is also unobjectionable, but the particulars provided in support of that proposition, which refer to correspondence from the defendants' counsel and also the original defence, are unnecessary, refer to evidence and should not be included in the pleading. (Page 15)
55 Paragraph 28 contains the real substance of the plaintiff's claim which is clearly supposed to be in the alternative. Paragraph 28 pleads: If (which is denied) the payments pleaded in paragraphs 17 and 18 above should be characterised as having been made by way of investment in the Business, then by reason of the matters pleaded in paragraphs 26 and 27 above, there has been a total failure of consideration in respect of those payments. 56 This is a separate cause of action and in essence, as I understand the claim, the plaintiff is setting up an alternative basis of liability, namely an obligation on the part of the defendants (or Mrs Velzen alone) to make restitution to him of the $110,000 on the basis that they had received the money from him in return for a consideration which has wholly failed. The cause of action is in restitution, on the basis of unjust enrichment. 57 According to the learned authors of Cheshire & Fifoot(Cheshire & Fifoot's Law of Contract 9th Aust ed at 26.4): A payment made for a consideration which has wholly failed is prima facie recoverable in restitution. Recovery of payments on this basis was previously classified as recovery of money had and received to the plaintiff's use. As with money paid by mistake, failure of consideration is now a category of restitution. Failure of the consideration for which the money was paid is the factor which makes retention of the payment an unjust enrichment. A failure of consideration occurs when a payment is made under a contract in return for a performance that has not eventuated, and will not eventuate. 'Consideration' in this context refers to actual performance, rather than the promise to perform. In Roxborough v Rothmans of Pall Mall Australia Ltd ([2001] HCA 68 at [16]; see also [104]) the High Court went further, and held that 'failure of consideration is not limited to non-performance of a contractual obligation', but 'embraces payment for a purpose which has failed as, for example, where a condition has not been fulfilled, or a contemplated state of affairs has disappeared'. So in Roxborough the consideration for payments made for the purpose of obtaining statutory licences failed when the statute was declared unconstitutional, although this had not prevented the performance of the contract between the parties. 58 Examples of money paid for consideration which has wholly failed are referred to in an early edition of Bullen and Leake and Jacob's Precedents of Pleadings (12th ed, Sweet & Maxwell, London 1975, at 666) as including money given for a forged railway scrip or a banknote or worthless cheque, or given for bonds sold as valid bonds, but which (Page 16)
proved effective and worthless, money paid as a deposit on a contract of sale which was rescinded otherwise than for default of the purchaser or which the vendor could not complete, money paid for shares in a company which wrongly purported by its prospectus to be established, money paid for the price of an annuity which had ceased to exist before the sale, conduct money paid with a subpoena to a witness whose attendance was countermanded and who incurred no expense, and money paid for catering at a review which was cancelled. 59 Examples given in the same text where money was not recoverable include a case where directors refused to consent to the transfer of shares which the plaintiff had paid for, on the basis that it was not a total failure of consideration because, while the purchaser did not get a transfer into his own name, he did obtain the right of disposal of the shares (Stray v Russell (1860) 28 LJQB 279: 29 ibid 115). Another example given was freight paid in advance on goods which are subsequently lost at sea, unless the contract had specifically provided for payment in those circumstances. 60 As par 28 (even in combination with pars 25 - 27) stands, the pleading discloses no cause of action. It is necessary for the plaintiff to set up positively the material facts upon which he relies to allege that there was a payment made on the basis of a consideration which has wholly failed. And most significantly, if the defendants are to stand any chance of understanding the case against them, it is incumbent upon him to plead just what the consideration was for the payment of the money, which cannot be achieved by the form of negative assertion he has used. 61 At the moment, as his pleading stands, the plaintiff relies upon a set of facts which he totally refutes, an agreement which he denies and does not, in any event, plead as a material fact, and a consideration which he does not identify to contend that the consideration for that agreement has wholly failed. I accept the defendants' submission that it is impossible for them to plead to this paragraph and pars 25, 26 and 27 which are the lead-up to it as they currently stand. 62 As to the fact that this cause of action depends upon a factual scenario which is primarily denied by the plaintiff, there is no legal bar to that, providing the claim is expressed in the alternative, but it must be pleaded as a positive material fact. It cannot be pleaded by way of negative assertion as it is. While it is clear that the plaintiff's primary contention is that this was a loan, if he wishes to rely potentially upon the (Page 17)
factual scenario asserted by the defendants, he must plead that factual scenario, albeit in the alternative. 63 This gives no ethical difficulty for counsel. Though this may not accord with the plaintiff's understanding of events or his likely evidence, the fact that these matters have been asserted in detail in the defence gives a basis for thinking there is an evidentiary foundation for the pleading. And it may well emerge when the plaintiff gives detailed evidence and is cross-examined that the factual gulf between the parties is not as large as it currently seems. The factual scenario can be positively asserted. 64 The alternative course of action would be to wait for these matters to be raised again in the new defence and then reply to them but, given the course of the pleadings and the arguments to date, the plaintiff is apprised of the defence case and nothing is to be gained in the litigation of this case by the plaintiff having to reserve these pleadings for his reply. 65 Whether this alternative claim stands any real chance of succeeding cannot be determined on the current pleadings, which do not identify the alleged consideration, and may well not be able to be determined prior to trial in any event, because much will depend upon what evidence is given by the defendants and what evidence is accepted or rejected by the trial judge. The plaintiff should be given an opportunity to mount this alternative case if the findings of fact go against him at trial and the $110,000 is found to have been an investment. 66 The hurdle for the plaintiff, however, is in establishing that the failure of the defendants to provide him with the unit share certificate evidencing that he had received units in the unit trust does amount to a total failure of consideration. He also asserts that the fact that he has never been issued with any shares in the investment company contributes to that total failure of consideration. As I read the pleadings as they currently stand, the defendants are not suggesting that he was ever to be issued with shares in the company. 67 Quite apart from the difficulties the defendants have in pleading to these pars as they currently stand, it is in the interests of the plaintiff that he consider very carefully just what the consideration was for the alleged investment and whether it was that he be given a formal certificate granting him units in the trust, or whether the real consideration was that the investment money would be employed for the purpose of operating the business, with the prospect of profit to the investors, but also the attendant risk of failure. The plaintiff should consider whether, had the business (Page 18)
made a profit and he received the benefit of that profit, he would be complaining of a total failure of consideration because he was not given a certificate of his unit trust holding. Did the failure to receive a formal certificate granting him units in the trust hinder his ability to become a creditor of the company? Careful consideration will also need to be given as to whether he is fact relying upon the existence of a contract between the parties in asserting the consideration had wholly failed. While a claim in restitution does not depend on the existence of a contract, it may be in this case that the plaintiff is in fact, in the alternative, asserting a positive agreement between the parties as to the consideration, in which case that should be positively pleaded. 68 There is another issue, and that is the payment of the money into the bank account of the company. This relates to any cause of action the plaintiff asserts grounded in restitution, including the elusive cause of action said to be pleaded in par 23. The defendants submit that an action for money had and received will ordinarily lie only against the immediate recipient of the money, citing Agip (Africa) Ltd v Jackson [1990] Ch 265, 287. That case, like others cited in it, involved fraudulent misappropriation of money by an employee of the plaintiff company, that money being transferred and further transferred into various bank accounts by a firm of accountants indirectly acting for the fraudulent employee. Eventually the money ended up offshore. The plaintiff failed in its common law claim for money had and received against the firm of accountants who had transferred the money on their client's instructions before they had any notice of the fraudulent misappropriation. The plaintiff did succeed in obtaining an order for the return of any funds still in the firm's possession however, not on the basis of a claim for money had and received, but because they were misappropriated trust funds and hence liable to be returned by anyone other than a bona fide purchaser who took without notice. Indeed as to the funds no longer in their possession, the accountants were also held liable because the court found they were implicated in the fraud. 69 The point of the case from the defendants' point of view is that it contains discussion of whether a claim for money had and received can be launched against anyone other than the immediate recipient of the money or his principal. It is of course readily distinguishable from this case. This case does not involve the fraudulent misappropriation of money and nor (as far as is apparent) the subsequent transferring of the funds through various entities. It involves the plaintiff following the defendants' instruction to deposit money into a place of their choosing. The plaintiff's case, as I understand it, is that the defendants were the immediate (Page 19)
recipients of the money, but the money was directed by them to be paid into a particular bank account and the plaintiff did so at their request. 70 The decision in Agip (Africa) Ltd v Jackson also leaves open the proposition that 'an action for money received is not limited to the immediate recipient or his principal but may be brought against a subsequent transferee into whose hands the money can be followed and who still retains it' (Millett J (287)). 71 This may well turn out to be an important legal issue at trial, but I would not, on the strength of the very limited argument before me, find that the plaintiff has no arguable case in restitution against the defendants because he paid the money into an account of their choosing. The plaintiff should not be deprived of the opportunity to mount full and well-researched legal argument on that point. In the end, however, more is likely to turn upon the findings of fact concerning whether this money was paid over by way of a loan, or by way of investment, and whether it was paid to the defendants but disbursed at their request to a particular account, or whether it was paid to the company account precisely because it was an investment in the company and the business to be run by the company. 72 Paragraphs 29 and 30 are particularly confusing. They may assert a different cause of action to the effect that 'the amount of $110,000 constitutes money had and received by Mrs Velzen and Mr Velzen for the use of the plaintiff' or alternatively money had by Mrs Velzen for the use of the plaintiff. The plaintiff's submissions imply this is a different cause of action from that raised by par 28. 73 But it is difficult to discern from the bare pleading whether pars 29 and 30 do raise anything new, or simply encapsulate the cause of action referred to earlier as a claim for restitution based on a total failure of consideration, as is suggested in the passage quoted above from learned authors of Cheshire & Fifoot. As I understand the plaintiff's alternative case, it is based on unjust enrichment, and I cannot glean from these paragraphs anything that suggests the defendants should have to make restitution over and above the assertion that the consideration for any investment has wholly failed and nor have the submissions before me raised some additional basis. 74 Leaving aside the precise form of terminology based on old forms of action, as I understand the substance of the plaintiff's alternative claim, it is that, if there was an investment, as opposed to a loan, then the (Page 20)
consideration for the payment of the investment has totally failed and the defendants ought not to be allowed in justice to retain the money. That is the argument and providing the plaintiff pleads clearly, in the alternative, that payment was made, the basis of the entitlement to restitution – in this case identifying clearly the alleged consideration and the basis upon which it is said to have wholly failed – and the resulting claim that the plaintiff is thereby entitled to restitution of the money, that will set out sufficiently clearly for the defendant and the court the basis of the plaintiff's claim. If the alleged consideration which has wholly failed is said to have been the subject of some agreement – and my understanding is that the plaintiff does, in the alternative, rely upon the agreement asserted by the defendants to establish that there was an agreed consideration for this investment – then that agreement will have to be pleaded as a material fact: see again Mason & Carter's Restitution Law in Australia [2908].
Conclusion 75 The appeal is upheld and, accordingly, leave is refused to the plaintiff to substitute his statement of claim with this proposed minute. I will hear the parties as to suitable programming orders in the event that the plaintiff does wish to propose another minute. 76 Should the plaintiff not wish to pursue a substitution of the statement of claim, and is content to rest upon his original statement of claim, then the complication arises that the plaintiff sought to amend that statement of claim, the amendments were the subject of an application to strike out and, as I understand the court file, those amendments were never ruled upon, because they were superseded by the plaintiff's minute of proposed substituted statement of claim. That may need to be revisited if the plaintiff does not propose another substituted statement of claim.
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