Harfield Enterprises Pty Ltd v Sinclair
[1999] WASC 177
HARFIELD ENTERPRISES PTY LTD -v- SINCLAIR & ORS [1999] WASC 177
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [1999] WASC 177 | |
| Case No: | CIV:1273/1999 | 20 SEPTEMBER 1999 | |
| Coram: | MASTER SANDERSON | 23/09/99 | |
| 12 | Judgment Part: | 1 of 1 | |
| Result: | Leave refused | ||
| PDF Version |
| Parties: | HARFIELD ENTERPRISES PTY LTD JUNE VALDA SINCLAIR JERMYN PTY LTD PHEOBE ALESSANDRA SINCLAIR |
Catchwords: | Practice and procedure Application for leave to amend defence Turns on its own facts |
Legislation: | Nil |
Case References: | Barnes v Addy (1874) LR 9 Ch App 244 Odin Central Service Pty Ltd v Interstruct Pty Ltd (1992) 7 WAR 57 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
JUNE VALDA SINCLAIR
First Defendant
JERMYN PTY LTD
Second Defendant
PHEOBE ALESSANDRA SINCLAIR
Third Defendant
Catchwords:
Practice and procedure - Application for leave to amend defence - Turns on its own facts
Legislation:
Nil
(Page 2)
Result:
Leave refused
Representation:
Counsel:
Plaintiff : Mr R A Zilkens
First Defendant : Mr H R Robinson
Second Defendant : Mr H R Robinson
Third Defendant : Mr H R Robinson
Solicitors:
Plaintiff : Zilkens & Co
First Defendant : Haydn Robinson
Second Defendant : Haydn Robinson
Third Defendant : Haydn Robinson
Case(s) referred to in judgment(s):
Barnes v Addy (1874) LR 9 Ch App 244
Case(s) also cited:
Odin Central Service Pty Ltd v Interstruct Pty Ltd (1992) 7 WAR 57
(Page 3)
1 MASTER SANDERSON: This was the return of the plaintiff's chamber summons seeking to strike out certain paragraphs of the defendants' defence and counterclaim. On the morning of the hearing the defendants' solicitors lodged a minute of amended defence which was designed to address the plaintiff's concerns. The amendments made to the defence by the minute were not extensive and, although he had little time to consider the minute, counsel for the plaintiff was prepared to proceed on the basis that the application was treated as an application by the defendants for leave to amend their defence in terms of the minute, and, if leave was not granted, then an application by the plaintiff to strike out the defence as it presently stands.
2 The statement of claim is in a slightly unusual form. Paragraph 1 of the statement of claim comprises what are defined as "definitions". The pleader has then defined "duties" to mean five separate and distinct things. By way of example, one of these definitions is a duty on a director not to misuse information and position. This duty is in turn further defined to include duties which arise under the provisions of the Corporations Law and, so it would seem, duties both in law and equity. I am bound to say I have some doubts as to this form of pleading. I am not at all sure that it makes clear precisely what duty arises in particular circumstances. But there has been no attempt to strike out the statement of claim, necessitating the assumption that the defendant is satisfied it is possible to plead to the statement of claim as framed.
3 The plaintiff's claim against the first defendant is to be found in par 2 of the statement of claim which, in turn, is broken down into 12 subparagraphs. The claim can be summarised in the following way. Between March 1993 and May 1994 the plaintiff carried on a nappy hire and wash business. The first defendant was the beneficial owner of one share in the capital of the plaintiff from March 1993 until February 1997 and the beneficial owner of 49 shares in the plaintiff from February 1997 onwards. The first defendant was also a director of the plaintiff from 5 March 1993 until 28 February 1994. The first defendant is alleged to have managed the plaintiff's business from March 1993 to April 1994.
4 It is alleged by the plaintiff that in March 1993 the first defendant registered the business name of "Nature's Babies Nappy Hire" (the business name). It is alleged between March 1993 and May 1994 the plaintiff's business traded under that name. As a consequence of these pleaded facts, it is alleged that certain duties were owed by the first defendant to the plaintiff. It is said that these duties were owed as a consequence of the first defendant being a director of the plaintiff and
(Page 4)
- manager of the plaintiff's business. It is then pleaded that the first defendant breached the duties she owed to the plaintiff. It is said that she registered the business name in her own name rather than in the name of the plaintiff. It is alleged that at a meeting of directors of the plaintiff in March 1993 the first defendant resolved with the third defendant to grant to the first defendant a licence to operate under the business name. It is alleged that the first defendant failed to advise any director, other than the third defendant, of the grant of this licence. It is then alleged that the first defendant:
"Caused the plaintiff to develop and improve the plaintiff's business including, in particular, the goodwill attached to the business name … in circumstances where, subject to duties, the first defendant could terminate the licence agreement at will and take from the plaintiff the right to use the business name without the need to pay any compensation … ."
6 Paragraph 3 of the statement of claim sets out the plaintiff's cause of action against the second defendant. Essentially what is pleaded is that the second defendant was an accessory to the actions of the first defendant as pleaded in par 2. By way of relief the plaintiff is seeking an account of profits from both the first and the second defendant but, in relation to the second defendant, is seeking to trace assets and alleges that the second defendant holds the business as a constructive trustee for the plaintiff.
7 The claim against the third defendant is to be found in par 4. Essentially, she too is said to be an accessory although she is alleged to have breached her duties as a director of the plaintiff in her own right. The claim against the third defendant is for equitable damages for breaches of her duty to the plaintiff.
8 Paragraph 2 of the minute of amended defence responds to par 2 of the statement of claim. Because par 2 is attacked, virtually in its entirety and certainly as regards what the defendants would say are its essential elements, I will set it out in full. The only difference between the present
(Page 5)
- defence and the minute are particulars to par 2.24 and the addition of par 2.26(a), (b) and (c). It reads as follows:
"2.1 The Defendants admit paragraph 2.1 of the Statement of Claim.
2.2 From approximately 1 May 1991 to 24 February 1993 Nature's Nappy Wash Service Pty Ltd ('NNWS') carried on the business of nappy hire and wash service.
2.3 At all material times Kimberley John Taylor Morrison ('Morrison') was in control of NNWS.
2.4 On 24 February 1993 Morrison entered into an agreement with the First Defendant whereby a company was to be established to purchase the said business from NNWS the terms of which included inter alia that no amount was payable for goodwill and the business name Nature's Nappy Wash Service to be transferred to the new company.
2.5 Pursuant to the said agreement, the Plaintiff was incorporated and the said business transferred from NNWS to the Plaintiff.
2.6 From approximately 8 March 1993 until 16 May 1994 the Plaintiff carried on the said business.
2.7 Between 24 February 1993 and about 2 February 1996 the issued share capital of the Plaintiff comprised 2 ordinary class shares, 1 share being in the name of the First Defendant and 1 share in the name of Morrison.
2.8 On or about 2 February 1996 the Plaintiff issued further shares whereby the total number of shares in the capital of the Plaintiff became 100, with 49 owed by the First Defendant and 51 owned by Morrison.
2.9 At all material times Morrison has been a director of the Plaintiff and the other director of the Plaintiff is his wife, Christine Pricilla Morrison appointed 7 February 1997.
2.10 Despite request, Morrison failed to cause NNWS to transfer the business name Nature's Nappy Wash Service to the Plaintiff until 31 May 1993.
(Page 6)
- 2.11 On 23 March 1993 at a duly convened meeting of the directors of the Plaintiff, it was resolved that the company would use a name to be supplied under licence from the First Defendant to allow the company to trade until the commitments to current clients had been honoured and the company could be wound up. It was further resolved all goodwill attaching to the name would remain the property of the First Defendant although the company would have the benefit of all contracts made using the name until the termination of the licence, which could be terminated by the First Defendant with 7 days notice to the Plaintiff.
2.12 Pursuant to the said resolutions, the First Defendant registered the business name, Nature's Babies Nappy Hire on 23 March 1993 and from 23 March 1993 until 16 May 1999 the Plaintiff carried on the said business using the said business name.
2.13 On 22 February 1994 the First Defendant terminated the right of the Plaintiff to use the business name, Nature's Babies Nappy Hire, stating 'From 1 March 1994 Nature's Babies Nappy Hire will operate as a separate entity, and it is suggested that a meeting of Harfield's directors be held to wind up the company as resolved in the minute of 23 March 1993 and that Nature's Babies Nappy Hire would provide financial accommodation to Harfield Enterprises Pty Ltd by honouring the company's current debt to Spotless Linen Services (approximately $12,000.00) and other outstanding creditors as at 1 March 1994.'
2.14 Notwithstanding the said notice dated 22 February 1994, the First Defendant permitted the Plaintiff to continue to trade under the business name, 'Nature's Babies Nappy Hire'.
2.15 Between 22 February 1994 and 16 May 1994 the directors of the Plaintiff negotiated with the First Defendant for the sale of the said business to the First Defendant.
(Page 7)
- 2.16 At 16 May 1994 the directors of the Plaintiff were Morrison and Messrs Lusher and Warner.
2.17 At a meeting of the directors of the Plaintiff on 16 May 1994 it was minuted:-
'Mr Lusher asked for the tabling of any offers from Mr Morrison's parties (to purchase the business of the Plaintiff). Mr Morrison had no offers to report, although there were some negotiations with an unnamed party from the eastern states.
Mr Lusher then proposed that in the absence of any other firm offers and the extreme urgency of completing a sale to protect the interests of the company by ensuring it was not left with the considerable debts currently outstanding, as well as the dubious nature of the value of the business to any other party than Mrs Sinclair in the light of a history of running at a loss, that the company would be best advised to accept Mrs Sinclair's offer.
Mr Morrison then suddenly absented himself from the meeting. Mr Warnock followed Mr Morrison and reported back that Mr Morrison would not be returning. Following Mr Morrison's refusal to return to the meeting, Mr Lusher then passed the resolutions for the opening of the new bank account, the sale of the furniture to Mr Morrison for $2,200.00 and for the sale of the business to Mrs Sinclair's nominee. The Junesco Trust and signed the contracts.'
2.18 Pursuant to the resolutions passed by the directors of the Plaintiff on 16 May 1994, the Plaintiff entered into an agreement with the First Defendant to sell its business for the gross purchase price of $5,000.00 with the First Defendant agreeing to indemnify the Plaintiff against all claims or demands in respect of any liability incurred by the Plaintiff in respect of the said business up until the date of settlement.
2.19 The Defendants will at trial refer to the entire agreement to purchase a business for its complete terms and effect.
(Page 8)
- 2.20 The said agreement was entered into by the Plaintiff with full knowledge of all material facts relating to the First Defendant.
2.21 The said agreement was entered into with the full knowledge of Morrison.
2.22 At all material times the First Defendant made a full and complete disclosure of all acts by her and of her interest in the business name, 'Nature's Babies Nappy Hire' and that the First Defendant was the purchase of the said business from the Plaintiff.
2.23 Because of the matters pleaded in paragraphs 2.1 to 2.22 the First Defendant has not breached any duties owed to the Plaintiff.
2.24 Further and in the alternative, because of the matters of fact pleaded in paragraphs 2.1 to 2.22 the Plaintiff is now estopped from disputing the validity and enforceability of the said agreement.
PARTICULARS
The Plaintiff derived benefits as pleaded in paragraphs 2.11, 2.14 and 2.18.
The First Defendant suffered detriment as pleaded in paragraphs 2.11, 2.13, 2.18 and 2.25.
2.25 Further and in the alternative, if the Plaintiff considered the acts or omissions by the First Defendant were in breach of any duties owed by the First Defendant to the Plaintiff, the Plaintiff should have given notice of the allegations to the First Defendant between 23 March 1993 and 16 May 1994 and in any event on or before 16 May 1994, because in reliance on the said agreement dated 16 May 1994 being valid and enforceable, the First Defendant settled the purchase of the business and thereafter operated the business as though it was her business, free from any claims by the Plaintiff.
2.26 Because of the matters of fact pleaded in paragraphs 2.1 to 2.22 and 2.25 the Plaintiff:-
(Page 9)
- (a) acquiesced in the Defendants' conduct; and in the alternative
(b) caused the Defendants to alter their position when they were reasonably entitled to rely on the Plaintiff's acceptance of the status quo, and in the alternative
(c) permitted the Defendants' conduct to occur in circumstances in which it would be unjust for the Plaintiff to now disturb the status quo
whereby the Plaintiff is estopped from now asserting the acts or omissions by the First Defendant which occurred on or before 16 May 1994 constitute a breach of any duties owed by the First Defendant to the Plaintiff.
- 2.27 Save as herein admitted the Defendants deny paragraphs 2.2 to 2.12 of the Statement of Claim."
9 The plaintiff first attacks par 2.2 through to par 2.6. These paragraphs appear to be a narrative of how it came about that the plaintiff carried on a business as a nappy hire and wash service. It is not clear how these paragraphs are relevant to any matter in issue between the parties. It does not seem to be of any consequence how the plaintiff came to be conducting this business. Paragraph 2.2 of the statement of claim alleges that the business was carried on by the plaintiff from 8 March 1993 until May 1994. Paragraph 2.2 through to par 2.6 of the defence appear to concede that point and if it is conceded then there ought be an admission to that effect in the defence. But the form of the defence at the moment contains irrelevant material and might well raise a false issue. In my view, those paragraphs cannot stand.
10 No issue is taken with par 2.7 or par 2.8. In fact, par 2.7 and par 2.8 of the defence tie in with par 2.3 of the statement of claim and details the shareholding by referring to Morrison as the holder of the shares not owned by the first defendant. It is also reasonable that the first defendant should plead that Morrison has at all material times been a director of the plaintiff. But the rest of the material in par 2.9 seems to be irrelevant. It may well be that Morrison's wife is a director of the plaintiff, but that fact does not go to any issue between the parties. On that basis, I would allow the first part of par 2.9 to stand but I would strike out all the words appearing after the word "Plaintiff" in the first line.
(Page 10)
11 Paragraph 2.10 does not appear to be relevant to anything. It does appear to relate back to matters pleaded in par 2.2 through to par 2.6. It suggests some misconduct on the part of Morrison, but it is difficult to see how that alleged misconduct is in any way related to the claim made by the plaintiff against the first defendant. If the paragraph is intended in some way as a justification for the actions being the actions taken by the first defendant, presumably consequent upon some default by Morrison, nowhere in the pleading is this fleshed out. It is irrelevant and it should be struck out.
12 No issue is taken with either par 2.11 or par 2.12. The plaintiff does not take issue with the first two lines of par 2.13. But the plaintiff complains that par 2.13 contains a direct quote from the notice of termination. As such, it was submitted that this was evidence and ought not be pleaded: see O 20 r 8. This same complaint was made with respect to par 2.17. During the course of his submissions, counsel for the defendants submitted that both paragraphs were in a proper form. That is clearly incorrect. There can be no doubt that both paragraphs, as they are pleaded, plead evidence. That is not permitted. The position could not be clearer. Paragraph 2.13, save for the first two lines, and all of par 2.17 should be struck out.
13 Objection is taken to par 2.14 and par 2.15. It may be that par 2.14 sets the grounds for a plea of estoppel or acquiescence. Although I have some doubts as to whether it should appear in par 2 at all, I am prepared to allow par 2.14 to stand. Paragraph 2.15 takes the matter nowhere. It does not seem to lead to any subsequent plea, either in relation to an agreement reached between the plaintiff and the first defendant or otherwise. Paragraph 2.15 should be struck out.
14 Objection is taken to par 2.21. It is difficult to see how the knowledge of Morrison is in any way relevant to matters raised by the first defendant by way of defence. It may be that par 2.21 could be recast as particulars to par 2.20. After all, if it is said by the first defendant that the plaintiff had full knowledge of all material facts, that knowledge must have been in the possession of the directors. Morrison was one of the directors of the plaintiff. But par 2.21 cannot stand in its present form and should be struck out.
15 Objection is taken to par 2.25. This paragraph pleads a positive duty on the part of the plaintiff. If such a duty exists, then the first defendant should plead how the duty arises and its elements. As it is presently pleaded, par 2.25 seems to have elements of estoppel, acquiescence and
(Page 11)
- perhaps laches interwoven in a form which is unintelligible. Paragraph 2.25 should be struck out.
16 Objection is taken to par 2.26. This paragraph appears to be a rolled up plea of acquiescence, laches and estoppel. If that is what is intended to be pleaded, then it ought be properly pleaded. At present, the paragraph is not in an acceptable form and it should be struck out.
17 The plaintiff also takes exception to par 3.1, par 3.3, par 4.1, par 4.3 and par 4.4 of the defence. Insofar as these paragraphs depend for their efficacy on the existence of par 2 of the defence and counterclaim, then clearly they cannot stand. However, the plaintiff raises another objection. It is said that these paragraphs are bare denials and that bare denials are not a proper pleading. It is often the case that a defence which is nothing more than bare denials is not a proper pleading - so-called "holding defences" are a good example of this situation. But what the second and third defendants are doing in this case is simply denying the elements of the cause of action pleaded against them. As I mentioned above, the second and third defendants are drawn into the action as accessories, subject to certain alleged breaches of duty by the third defendant in her own right. By denying the plaintiff's claim, both the second and third defendants are effectively denying that they were accessories to any breaches of duty by the first defendant. What that means is that if the first defendant is successful in her defence to the claim, then the claims against the second and third defendants largely fall away (subject again to direct allegations against the third defendant). If the plaintiff succeeds against the first defendant, then it will be necessary for the plaintiff to go on and establish that the second and third defendants were knowingly concerned in the breaches of duty by the first defendant. In essence, what the plaintiff is claiming is that the second and third defendants are liable under what is generally referred to as the second limb of Barnes v Addy (1874) LR 9 Ch App 244. The plaintiff picks up alleged breaches of statutory duty by the first defendant, but the principles are the same. In my view it is open to the second and third defendants to simply deny that they were knowingly concerned in any breach of duty by the first defendant. That means that they cannot run a positive case at trial. But if that is the way they choose to run their defence, then it is open to them and the form of pleading is not objectionable. While I would strike out those paragraphs of the second and third defendants' defence which rely upon par 2 of the defence, it would seem to me that it is open to both defendants to re-plead their case as bare denials.
(Page 12)
18 Accordingly, I would strike out par 3.1 and par 4.1 of the defence, along with those parts of par 2 to which reference has already been made. I would not grant leave to amend in terms of the minute. I will, however, give the defendants leave to re-plead.
19 I will hear the parties as to the precise form of the orders.
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