Healthsafe Australia Pty Ltd v Patterson - [2022] WASC 194

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   HEALTHSAFE AUSTRALIA PTY LTD -v- PATTERSON [2022] WASC 194
CORAM:   REGISTRAR WHITBREAD
HEARD:   11 NOVEMBER 2021
DELIVERED          :   3 JUNE 2022
FILE NO/S:   CIV 1621 of 2017
BETWEEN:   HEALTHSAFE AUSTRALIA PTY LTD
Plaintiff
AND
MARCELLE ANN PATTERSON
JOHN LESLIE PATTERSON
Defendants

Catchwords:

Practice & procedure - Application to strike out parts of defence to the re-amended statement of claim and further amended counterclaim - Turns on own facts

Legislation:

Corporations Act 2001 (Cth)
Rules of Supreme Court 1971 (WA)

Result:

Application granted

Category: B

Representation:

Counsel:

Plaintiff	:	Mr A Metaxas
Defendants	:	Mr N Andreou

Solicitors:

Plaintiff	:	Metaxas Legal
Defendants	:	Monaco Lawyers

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

Breen v Williams [1996] HCA 57
Clay v Clay (1999) 20 WAR 427; [1999] WASCA 8
English v Vantage Holdings Group Pty Ltd [2021] WASCA 47
Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41
In re Blundell; Blundell v. Blundell (1888) 40 Ch D 370
Pitt v Holt [2013] 2 AC 108; [2013] 3 All ER 429
Vantage Holdings Group Pty Ltd v Donnelly [No 4] [2019] WASC 398

REGISTRAR WHITBREAD:

The Application

The plaintiff (Healthsafe) filed an application on 21 July 2021 to strike out pars 41, 43, 44, 45, 46, 51, 52, and 53 of the defence to the re-amended statement of claim and the amended counterclaim (Defence and Counterclaim) filed on 8 July 2021 (Application) together with an application for an extension of time to file the Application. The paragraphs in issue all fall within that part of the Defence and Counterclaim that pleads the counterclaim. There was also an application for further and better discovery which has fallen away (save as to costs of the application).
The parties have filed written submissions and affidavits respectively in support of, and in opposition to, the Application as set out in more detail below. The Application was heard on 11 November 2021.

The parties pleaded cases

It is usual to set out the parties' pleaded cases before dealing with the issues raised on a strike out application. Neither of the parties set out the facts and background of the dispute or summarised their respective pleadings. I have summarised the facts and background and the parties' respective positions below in order to put the Application into its proper context. Where the parties are individual persons it is convenient to refer to them by their first names. No disrespect is intended by that approach.

Facts and Background

From 15 July 2002 to a date in October 2018, Healthsafe was the registered proprietor of leased office premises (Property) in its capacity as trustee of the Winton Road Property Trust (Trust).
There are 100 issued units in the Trust. Healthsafe claims that the defendants, Marcelle Ann Patterson (Marcelle) and John Leslie Patterson (John) own 51 units and Rachael Eilene Clohessy (Rachael) owns 49 units. Marcelle and John assert that they own 56 units and Rachael owns 10 with there being a disputed transfer of 34 units to Rachael and John Robert Clohessy (Deceased) from Meegan Maree Clohessy (Meegan) in December 2009. The relevance of that disputed transfer to the outcome of the Application is discussed further below.
The Deceased was the sole director of Healthsafe from 9 September 1997 to 2 February 2016. The Deceased was married to Rachael until his death on 27 September 2014; Marcelle and John assert that Rachael and the Deceased were estranged at the date of death.
The Deceased's brother, Victor Michale Clohessy (Victor) was recorded as a director of Healthsafe on the ASIC register from 20 September 2014 to 2 February 2016.
Marcelle, the Deceased's sister, was recorded as a director and company secretary of Healthsafe on the ASIC register from 20 September 2014 to 2 February 2016. John is Marcelle's husband.
Healthsafe claims that the appointments of Victor and Marcelle as directors were invalid, and that the Deceased was medically incapable (by reason of the terminal stages of cancer) of having appointed them as at the dates of their purported appointments.
Rachael was the sole director of Healthsafe from 2 February 2016 and has been the sole shareholder since 2004.
On 18 December 2013 the National Australia Bank (NAB) registered a mortgage over the Property.
Better Managed Contracts Pty Ltd (BMC) was incorporated on 4 June 2013 with a registered office in Docklands, Melbourne (Docklands). The Deceased was the sole shareholder and a director of BMC from 4 June 2013 to 4 August 2015. From 16 September 2015, Victor was a director and Marcelle was company secretary on the ASIC register. BMC was deregistered on 30 October 2017.
Healthsafe asserts that since about September 2014, Marcelle and John, or just Marcelle, occupied a part of the property known as office 3 (Office) from which Marcelle operated a secretarial service. This is denied by Marcelle and John who assert that from about 15 July 2002 to 12 April 2017 Marcelle, at Healthsafe's request, provided administrative support to Healthsafe from an office maintained by Healthsafe.
The remainder of the Property is rented to other persons under commercial tenancy agreements.

Healthsafe's claims

On 27 September 2016 Rachael, in her capacity as sole director of Healthsafe, required Marcelle and John to vacate the Property, hand over the keys, pay all monies received from tenants of the Property which had not been received by Healthsafe and hand over all relevant books and records.
On 11 October 2016 Marcelle and John advised Rachael that they were not occupying any part of the Property, would deal with Healthsafe’s agent and that Rachael had the contact details for the businesses occupying the premises.
Rachael renewed her requests which were not complied with and proceedings were commenced.
As of 22 May 2017, there were said to be seven tenants of the Property pursuant to written leases with 'Winton Professional Suites c/‑ Healthsafe Australia Pty Ltd ATF Winton Road Property Trust trading as Winton Professional Suites' as the landlord. Marcelle carried on business under the registered business name Winton Professional Suites (WPS) after about February 2001, and Healthsafe claims that WPS has wrongfully received rental payments which should have been paid into its account.
Healthsafe contends that:
(a)Marcelle has wrongfully issued invoices in the name of WPS, has set up bank accounts in Healthsafe's name and received monies into those accounts and failed to account for it; and has wrongfully arranged for WPS to receive rental monies into its bank account;
(b)Marcelle and John have failed to hand over:
(i)Healthsafe's books and records;
(ii)all monies received from tenants of the Property (to the sum of $103,792 between 16 December 2015 and 19 May 2017); and
(iii)the keys to the Property; and
(c)Marcelle and John have unlawfully remained in occupation of the Office.
On 21 December 2015 Healthsafe provided Marcelle and John with a resolution signed by Rachael as sole director which removed Marcelle and Victor as directors of Healthsafe, removed Marcelle as company secretary and appointed Rachael as sole director.
Healthsafe contends that since 21 December 2015 Marcelle has retained all books and records of Healthsafe and has continued to pay monies from Healthsafe's bank account to herself.
Healthsafe further contends that at no time has it carried on business as BMC and that Marcelle has wrongfully incurred debts for Healthsafe in the name of BMC in that she had no authority, and knew that Healthsafe did not carry on business as BMC, when:
(a)on or about 28 May 2014 she executed a phone system contract with Telstra as the 'administration manager' of Healthsafe trading as BMC which required Healthsafe to make monthly payments to Telstra for 48 months; and
(b)on 17 October 2014 she executed an IP Telephony Contract (IPT Contract) in her purported capacity as an authorised signatory of Healthsafe trading as BMC for services at the Property and at Docklands which required Healthsafe to make monthly payments to Telstra for 36 months.
Healthsafe contends that as of 20 September 2014, due to incapacity consequent on his illness, the Deceased did not have capacity to appoint Marcelle and Victor as directors of Healthsafe and that Marcelle knew this. Hence, Marcelle and Victor's appointment as directors was invalid. However, if found to be valid, then Marcelle has failed to exercise her powers, and discharge her duties, for a proper purpose and in good faith in the best interest of Healthsafe. Further, she has improperly used her position to gain an advantage for someone else or to cause detriment to Healthsafe in that Healthsafe had no business in Docklands and so need for the IPT Contract, which contract was for the benefit of BMC and caused detriment to Healthsafe.
In broad terms, Healthsafe seeks declarations going to breach of duties, under the Corporations Act 2001 (Cth) by Marcelle; rectification of the ASIC register as to directors' appointments; damages for trespass; an account from Marcelle and John for monies received as agents for Healthsafe; and an indemnity for liability under the IPT Contract from Marcelle.

Marcelle's and John's counterclaim against Healthsafe and Rachael

Marcelle and John, respectively the first and second plaintiff by counterclaim, claim that the Trust was created by deed dated 7 January 2002 (Trust Deed) and the unit holders were the Deceased and Rachael (10 units), Marcelle and John (56 units) and Meegan (34 units). On Marcelle and John's case, Meegan's units were wrongfully, or invalidly and ineffectively, transferred from Meegan to the Deceased and Rachael in breach of the Trust Deed (Transfer).
Healthsafe, the first defendant by counterclaim, is the trustee of the Trust; from 21 December 2015 Rachael, the second defendant by counterclaim, was the sole director of Healthsafe and from 2004, the sole shareholder.
Marcelle and John claim that Healthsafe, as trustee, has breached fiduciary duties to the beneficiaries of the Trust and failed to comply with specified terms of the Trust Deed. Healthsafe, as trustee, has failed to avoid a conflict of interest; has made payments to, or for the benefit of Rachael, where payments were not made to Marcelle or John; has failed to take all relevant matters into account; and has breached the Trust Deed. It is the form of pleading of those alleged breaches of fiduciary duty which are the subject of the Application.
As a consequence of the alleged breaches, Marcelle and John claim that the Transfer and resolutions passed on 8 January 2002 and 15 December 2009 to the benefit of the Deceased and Rachael (Resolutions) are void and of no effect.
As a consequence of the alleged breaches Marcelle and John also claim that Rachael has wrongfully received monies directly or the benefit of monies.
Marcelle and John claim that they have made loans to Healthsafe which have not been repaid.
In broad terms, Marcelle and John seek, as against Healthsafe, declarations in respect of the Transfer and the Resolutions, compensation and/or damages, an account in respect of the Trust and an order that the Trust be wound up. As against Rachael they seek a declaration that monies wrongfully received by her are held on trust for them or compensation and/or damages.

General observations as to the pleadings

Both sides of this case have had multiple attempts at pleading their respective claims. Regrettably, the pleadings remain far from satisfactory. Some brief examples will suffice to illustrate this.
First, at pars 12 to 18 of the re-amended statement of claim, Healthsafe pleads an exchange of correspondence between the parties' respective solicitors between September 2016 and March 2017. Each paragraph takes the form that by a letter of a certain date, one party in effect informed the other of certain matters, and made demands, or responded to demands made, under the threat of commencing legal proceedings. The matters asserted in that correspondence are not separately pleaded as material facts. The fact of demands having been made and not met might explain why this proceeding was commenced, but it is difficult to see how the making of demands in correspondence between solicitors is material to the underlying causes of action now asserted.
At pars 12 to 18 of their defence, Marcelle and John initially admitted the fact that correspondence was exchanged between solicitors but otherwise mostly denied the matters alleged. However, in the Defence and Counterclaim they amended each of these paragraphs to withdraw the admissions (without leave) and in place thereof to plead, '… the pleading is embarrassing, it contains evidence, alternatively particulars, rather than material facts of a recognised cause of action and it should be struck out. The defendants reserve the right to plead further upon provision of any amended pleading.' Notwithstanding this response, Marcelle and John have not applied to strike out the paragraphs in question. Similar complaints that specific allegations in the re-amended statement of claim should be struck out are made in each of pars 19, 28 and 29 of the Defence and Counterclaim, again with no application having been made to have those allegations struck out.
Secondly, as noted above, Healthsafe has pleaded that ASIC registers recorded Victor and Marcelle having been appointed as directors of Healthsafe in September 2015. However, the closest that Healthsafe comes to pleading that Victor and Marcelle were not in fact so appointed is in par 31.1, which pleads that Victor and Marcelle 'were not lawfully appointed as directors' on the basis of the matters pleaded in pars 23 to 30, which matters include that in May 2014 (4 months before her appointment as a director) Marcelle executed a contract with Telstra (par 23), that she executed the IPT Contract in October 2014 (par 24), and that Healthsafe was indebted to Telstra pursuant to those contracts as at December 2014. Those matters don't support the allegation in par 31.1.
The most material allegations of fact to the question of whether Victor and Marcelle were 'lawfully appointed as directors' are in pars 28 and 29, which plead respectively that the Deceased lacked capacity to appoint them as directors and that Marcelle knew of that lack of capacity, but it is unclear whether Healthsafe is alleging that the Deceased did not in fact appoint them, or that the Deceased did in fact appoint them but that appointment is ineffective at law as a consequence of his incapacity.
The position is not clarified by the Defence and Counterclaim, which does not respond at all on behalf of John to the allegation in par 28 that the Deceased lacked capacity, and only tangentially responds on behalf of Marcelle. As to the allegation in par 31.1 of the re-amended statement of claim that Victor and Marcelle were not lawfully appointed as directors, Marcelle denies that she was not lawfully appointed but does not respond in respect of Victor, and John does not respond in respect of either appointment, thus effectively admitting invalidity of the respective appointments.
Although these matters are not raised directly by the Application, I mention them at the outset for two reasons:
(a)first, the Application has been brought on the basis that it seeks a standard of pleading of the counterclaim that Healthsafe has itself fallen far short of in pleading its re-amended statement of claim; and
(b)secondly, there are far greater problems with the pleadings than just those raised by the parties' submissions on the Application, and the parties might wish to give serious consideration to direct conferral between counsel with responsibility for the pleadings with a view to filing of substituted pleadings that will, it is to be hoped, clarify the material facts in issue and avoid the need for further expending of unnecessary time and costs in advancing this proceeding toward trial.

Legal principles relating to striking-out of pleadings

4.1 Rules of the Supreme Court 1971 (Rules)

Order 20 Rule 19 of the Rules provides as follows:
Striking out pleadings etc.
(1)The Court may at any stage of the proceedings, subject to subrule (3), order to be struck out or amended any pleading, or the indorsement of any writ in the action, or anything in any pleading or in the indorsement on the ground that—
(a)it discloses no reasonable cause of action or defence, as the case may be; or
(b)it is scandalous, frivolous or vexatious; or
(c)it may prejudice, embarrass or delay the fair trial of the action; or
(d)it is otherwise an abuse of the process of the Court,
and may order the action to be stayed or dismissed or judgment to be entered accordingly, as the case may be.
(2)No evidence shall be admissible on an application under subrule (1)(a).
(3)An application for an order under subrule (1) must ‑
(a)be made within 21 days of the service of any pleading, or amended pleading, or writ to which the application refers; and
(b)where the application is to strike out certain pleadings, specify —
(i)the paragraph of subrule (1) under which the application is made; and
(ii)those parts of the pleadings which the applicant seeks to have struck out; and
(c)where the application is to strike out the entire pleading, clearly indicate that intention in the application.
[(4)deleted]
(5)Unless special circumstances are shown, an application to amend pleadings consequent upon an order striking the pleadings out, in whole or in part, shall be accompanied by a minute of the proposed amendment.

Relevant principles – Pleadings and strike out

The principles applicable on a strike out application were summarised by Smith J in Vantage Holdings Group Pty Ltd v Donnelly [No 4] [2019] WASC 398 [60]. Her Honour's summary was recently adopted, and endorsed as a 'valuable guide', by the Court of Appeal in English v Vantage Holdings Group Pty Ltd [2021] WASCA 47 [56] (Murphy and Vaughan JJA) [163] (Mitchell JA).
In Vantage Holdings at [60] her Honour stated the principles relevant to strike out applications as follows:
(a)the essential functions of a pleading are to define and limit the issues for decision, to provide the basis for determining discovery and the admissibility of evidence for trial, and to ensure a fair trial by putting the other side on notice of the case it must meet;[1]
[1] EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78; (2010) 41 WAR 23 [124]
(b)a statement of claim must not plead allegations at too high a level of generality. A pleading must be sufficiently particular to conform with one of the primary objects of pleadings, to inform the opposing party of the case that it must meet;[2]
[2] DM Drainage & Constructions Pty Ltd v Karara Mining Ltd [2014] WASC 170 [32], applying Charlie Carter Pty Ltd v The Shop, Distributive & Allied Employees' Association of Western Australia (1987) 13 FCR 413, 417, Lonsdale Investments v OM (Manganese) Ltd [2009] WASC 188 [5].
(c)a statement of claim must state specifically the relief or remedy claimed;[3]
[3] Rules of the Supreme Court 1971 (WA) O 20 r 2(1).
(d)the court should proceed with caution before striking out a pleading on the ground that it does not disclose a reasonable cause of action.[4] While the court may determine a difficult question of law on such an application, it would usually be appropriate to leave the determination of such questions for trial;[5]
[4] Great Southern Finance Pty Ltd (in liq) v Rhodes [2014] WASC 431 [26] (Beech J) applying Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 [57] (Gaudron, McHugh, Gummow & Hayne JJ); Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 [46] (Gleeson CJ, Gummow, Hayne & Crennan JJ).
[5] Great Southern Finance Pty Ltd (in liq) v Rhodes [2014] WASC 431 [26] (Beech J).
(e)in alleging no reasonable cause of action:
(i)the question to be decided is not whether the facts pleaded are in themselves sufficient to give rise to a cause of action. Rather, the question is whether it would be open to the party (on its pleadings) to prove facts at the trial which would constitute a cause of action;[6] and
(ii)'reasonable' means reasonable according to law. If the facts pleaded conceivably give rise to relief, then the cause of action should be held to be reasonable;[7]
(f)the mere fact that a case appears weak is not of itself sufficient to strike out the action;[8]
(g)in considering a strike out application, it is now necessary to consider the role of pleadings in the context of case management techniques. Case management considerations are not, however, necessarily antithetical to the observance of pleading rules. The objects of O 1 r 4A and 4B of the Rules of the Supreme Court 1971 (WA) are often promoted by a clear and precise statement of the issues for decision;[9]
(h)provided a pleading fulfils its basic functions of identifying the issues, disclosing an arguable cause of action (or defence), 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 pleading rules that evolved in, and derive from, a very different case management environment;[10]
(i)pleadings may be struck out on the ground that they may prejudice, embarrass or delay the fair trial of the action because they are evasive, they conceal or obscure the real questions in controversy, they are ambiguous or not reasonably intelligible, they raise immaterial or irrelevant issues, they fail to confine the issues or state the case of the party in question with reasonable particularity, or they raise a case in terms which are simply too general;[11] and
(j)irrelevant or unnecessary pleas in a statement of claim will be struck out on the grounds that they will prejudice, embarrass or delay the fair trial of the action where the defendant must traverse the allegations and, thereby, raise false issues.[12]
[6] Mutual Life & Citizens' Assurance Co Ltd v Evatt (1970) 122 CLR 628, 631; Pancontinental Mining Ltd v Posgold Investments Pty Ltd (1994) 121 ALR 405, 414; Automotive, Food, Metals, Engineering, Printing & Kindred Industries Union of Workers - Western Australian Branch v Bell-A-Bike Rottnest Pty Ltd [2005] WASCA 157 [54] (Roberts-Smith JA).
[7] Automotive, Food, Metals, Engineering, Printing & Kindred Industries Union of Workers - Western Australian Branch v Bell-A-Bike Rottnest Pty Ltd [2005] WASCA 157 [54] (Roberts-Smith JA).
[8] Wenlock v Moloney [1965] 1 WLR 1238, 1243 - 1244 (Danckwerts LJ); Lindon v The Commonwealth [No 2] [1996] HCA 14; (1996) 70 ALJR 541, 545 (Kirby J); Del Borrello v Friedman and Lurie (a firm) [2001] WASCA 348 [61] (Kennedy J)
[9] Culleton v Permanent Custodians Ltd [2018] WASC 251 [33] (Allanson J).
[10] Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82 [7] (Martin CJ).
[11] DM Drainage & Constructions Pty Ltd v Karara Mining Ltd [2014] WASC 170 [34], applying Hart-Roach v Public Trustee (Unreported, WASC, Library No 980044, 11 February 1998) 8 - 9, Kidd v Mitchell Frederick Artus t/as Downings Legal [2013] WASC 264 [26].
[12] Ron Hodgson (Trading) Pty Ltd v Belvedere Motors (Hurtsville) Pty Ltd [1971] 1 NSWLR 472, 477.

The parties' submissions on the Application

Healthsafe delivered written submissions dated 3 August 2021 and supplementary submissions dated 9 September 2021.
Marcelle and John delivered written submissions dated 16 August 2021.
The parties made oral submissions at the hearing of the Application.

Healthsafe's submissions

The counterclaim commences at par 37 of the Defence and Counterclaim. Paragraph 41 pleads that Healthsafe as trustee had fiduciary duties to:
(a)take all relevant matters into account and
(b)to avoid conflicts of interest.
Healthsafe submits fiduciary obligations are solely proscriptive and that since any duty to take all relevant amounts into account is prescriptive it is therefore contrary to law in Australia. Detailed submissions in support of that contention (with reference to relevant authorities) are found at pars 13‑14 of Healthsafe's submissions filed on 25 October 2021. Healthsafe submits that if there is no duty as alleged in par 41(a) of the Defence and Counterclaim then that paragraph should be struck out together with par 43(b) which relies on that alleged fiduciary duty.
In relation to par 43(a) Healthsafe submits that whilst Marcelle and John contend that each of the matters set out in subpars (i) to (vi) are said to be a breach of a trustee's fiduciary duty to avoid a conflict of interest, in fact what is pleaded suggests either fraud, breach of trust or wilful default, and hence, pursuant to O 20 r 13(1)(a), Marcelle and John are required to plead specific acts, which has not been done. Healthsafe contends that the matters alleged at par 43(a)(i) ‑ (iv) cannot be founded on the failure of Healthsafe, as trustee of the Trust, to avoid conflicts of interest and that par 43(v) and (vi) plead that distributions were made to the Deceased and others without distributions being made to Marcelle and John. Marcelle and John have not pleaded the basis on which distributions were required to be made, nor how the payment of distributions involves a failure to take relevant matters into account.
As to par 44 Healthsafe relies on its submissions in respect of pars 41 and 43.
As to par 45(a), Healthsafe submits that in par 42(a) Marcelle and John plead the obligation of Healthsafe as trustee at the end of each accounting period (meaning financial year) to set aside or pay the net income of the Trust to or for the benefit of the unit holders in proportion to their unit entitlements. In par 45(a) of the pleading Marcelle and John plead that Healthsafe as trustee never set aside or paid the the net income of the Trust to or for their benefit. No basis for that obligation is pleaded.
Healthsafe further submits that, in the 'Particulars' subjoined to par 45, Marcelle and John allege that 'it may be inferred' that Healthsafe as trustee had income (presumably net income) that ought to have been set aside or paid for their benefit. That pleading is based on the fact that amounts totalling $213,540 were paid to or for the benefit of the Deceased and others. Marcelle and John allege a breach of trust but have failed to plead the basis of the obligation to make payment to them, which basis they ask to be inferred. They must also provide the particulars required by O 20 r 13(1)(a) to sustain such a plea.
Healthsafe submits, in relation to par 45(b), that at par 42(b) Marcelle and John plead the obligation of Healthsafe as trustee to keep complete and accurate records of all receipts and expenses of the Trust fund, and that, in par 45(b) of the pleading, Marcelle and John plead that Healthsafe as trustee failed to keep complete and accurate records of all receipts and expenses of the Trust fund. Marcelle and John have not pleaded the basis on which they contend such records should be kept or what records should have been kept consequent on that obligation.
Healthsafe submits that, in the 'Particulars' subjoined to par 45, Marcelle and John allege that Healthsafe as trustee has not produced the relevant records and reports in discovery in the proceeding. Healthsafe submits that even if there had been a failure to produce the documents in discovery, that is not evidence of a failure to keep complete and accurate records of all receipts and expenses of the Trust fund. Marcelle and John allege a breach of trust, but have failed to plead what records are required to be kept; which records have not been kept; and have also thereby failed to provide the proper particulars required by O 20 r 13(1)(a).
As to par 45(c), Healthsafe submits that, in par 42(c), Marcelle and John plead the obligation of Healthsafe as trustee to prepare an annual accounting report and to provide a copy to the unitholders. They contend that Healthsafe as trustee failed to prepare an annual accounting report and provide a copy to the unitholders. In the 'Particulars' subjoined to par 45 Marcelle and John allege that Healthsafe as trustee has not produced the said records and reports in discovery in the proceeding. I interpret that a failure to produce such records by way of discovery might, absent explanation, be evidence of a failure to keep such records, but it is neither a material fact itself, nor particulars of a material fact to be pleaded. Discovery follows pleadings, not the other way around. What records are sought is not pleaded. Healthsafe contends that Marcelle and John have omitted to plead what annual accounting records are required to be kept; the basis for that obligation and consequent on that obligation, the liability that flows from the failure to keep such records. They must also then plead the particulars required by O 20 r 13(1)(a).
As to par 45(d), Healthsafe submits that, in par 42(d), Marcelle and John plead cl 8.10 of the deed of settlement, and claim that, in or around December 2009 or early 2010, units owned by Meegan were transferred to the Deceased and Rachael without having been offered to them in proportion to their proportion of units owned. Healthsafe's substantive complaint is that Marcelle and John have omitted to plead the basis of the liability to so offer those shares and the acts which constitute the breach of that liability. The substantive complaint is again the failure to plead a proper basis for liability together with the omission to provide the particulars required by O 20 r 13(1)(a).
Healthsafe submits that, as to par 46, the remedy Marcelle and John claim thereunder cannot be 'loss and damage'. Healthsafe refers to Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 [95]‑[96] (Mason J) and submits that an order for taking accounts will not retrace the financial history of the Trust since it was constituted so as to give rise to the remedy claimed. In order to recover damages Marcelle and John need to plead the basis of the obligation breached which gives rise to such a right of recovery.
As to par 51, Healthsafe submits that the amounts of funds allegedly received by Rachael and the dates or times of such receipts have not been pleaded, as required by O 20 r 13(1)(a). Further, Healthsafe submits that particulars of knowledge of Rachael necessary to establish liability for receipt of trust funds have not been pleaded. Whilst expressed as a lack of particulars that substantive complaint is that Rachael’s liability cannot be establish without pleading her knowledge.
Healthsafe presumes that Marcelle and John rely on the principles stated in In re Blundell; Blundell v. Blundell(1888) 40 Ch D 370, 381, where Stirling J. stated his understanding of 'the general doctrine with reference to constructive trustees of that kind', that is where 'strangers, who are not themselves trustees, but are liable in certain cases to be made to account as if they were trustees'. That general doctrine was, he said, that:
a stranger to the trust receiving money from the trustee which he knows to be part of the trust estate is not liable as a constructive trustee unless there are facts brought home to him which shew that to his knowledge the money is being applied in a manner which is inconsistent with the trust; or (in other words) unless it be made out that he is party either to a fraud, or to a breach of trust on the part of the trustee.
Healthsafe submits that such allegation cannot be pleaded without the particulars of knowledge.
As to par 52, Healthsafe submits that the absence of the necessary particulars is 'scandalous' and that the generalities in pars (a) to (e) are not a substitute for proper particulars. Healthsafe submits Marcelle and John must specifically plead when and what was paid to Rachael as a starting point for a proper pleading. Again, the submission is that liability cannot be established without a proper pleading of the basis for that liability.
As to par 53, Healthsafe submits that this paragraph falls with pars 51 and 52.

Marcelle's and John's submissions

As to par 41, Marcelle and John submit that that paragraph pleads that Healthsafe as trustee had fiduciary duties to:
(a)take all relevant matters into account; and
(b)to avoid conflicts of interest.
Marcelle and John submit that the status of Breen v Williams [1996] HCA 57 ought to be considered in light of the decision in Pitt v Holt [2013] 2 AC 108; [2013] 3 All ER 429. Lord Walker provided that a trustee's duty to take relevant matters into account is a fiduciary duty and that fiscal consequences may be relevant considerations which a trustee ought to take into account, a trustee must inform themselves before making a decision, of matters which are relevant to that decision.[13] In any event, they contend that it is arguable that the duty to take all relevant matters into account is a proscriptive duty insofar as it may equally be characterised or described as a duty 'not to sacrifice a beneficiary's interests' by failing to take into account the market value of property at the time of sale and/or failing to consider the fiscal consequences of selling property at an undervalue.
[13] See Jacobs, ‘Law of Trusts in Australia’, 8^th Ed, at [16.01] and the commentary and case references set out therein.
Marcelle and John submit that Healthsafe's complaint with par 43(a) appears to be one of a lack of particulars, which is not a ground for strike out under O 20 r 19(1). They submit that what is asserted at par 18 of Healthsafe's submissions, fraud and/or wilful default is not pleaded and there is no basis for the submission that fraud or wilful deceit is alleged. What is pleaded are breaches of the fiduciary duty to avoid conflicts of interest and that particulars are provided. An application for further and better particulars has not been filed. Accordingly, there is no proper basis to contend that par 43(a) should be struck out under O 20 r 19.
As to par 43(b) Marcelle and John repeat their submissions in relation to par 41 and further submit that the pleading contention put by par 43(b) is that Healthsafe as trustee, in breach of its fiduciary duty, has failed 'not to sacrifice a beneficiary's interests' by failing to take into account the market value of property at the time of sale and by failing to consider the fiscal consequences of selling property at an undervalue. They submit that the 'market value' of the property is a matter which must be established by expert opinion and further particulars may be provided.
Marcelle and John submit that Healthsafe's complaint with par 43(b) (as with par 43(a)) appears to be one of a lack of particulars, which is not a ground for strike out under O 20 r 19(1). Accordingly, there is no proper basis to contend that par 43(b) should be struck out under O 20 r 19.
Throughout their submissions (in respect of various paragraphs the subject of the Application), as to the contention that Healthsafe's complaint is one of lack of particulars, Marcelle and John state that should Healthsafe request further and better particulars to those already provided, Marcelle and John have no objection to accommodating any such formal request. I infer that this means that there are further particulars which could be given in respect of the impugned paragraphs, if such particulars are requested. However, as I have noted in respect of Healthsafe's submissions the complaints go beyond a lack of particulars.
As to par 44, Marcelle and John refer to and repeat their submissions in relation to pars 41 and 43(b) and submit that in any event, whether or not the purported Resolutions and Transfer are void and of no effect is a matter which can only be determined at trial, not on a summary basis. Accordingly, they contend there is no proper basis to contend that par 44 should be struck out under Order 20 Rule 19.
As to par 45(a), Marcelle and John contend that Healthsafe's submissions are misconceived as Marcelle and John cannot plead the net income of the Trust as they are in ignorance of it on account of Healthsafe as trustee's conduct as pleaded, and particularised, at par 45(b) and 45(c).
Marcelle and John submit that Healthsafe's complaint with par 45(a) (as with pars 43(a) and 43(b)) appears to be one of a lack of particulars, which is not a ground for strike out under O 20 r 19(1). Accordingly, there is no proper basis to contend that par 45(a) should be struck out under O 20 r 19.
As to par 45(b), Marcelle and John submit that Healthsafe as trustee has not produced all financial statements in the proceeding. Healthsafe has produced some financial statements in discovery (as referred to at par 40(a)-(e) of Healthsafe's submissions), but Healthsafe has failed to produce the signed financial statements and tax returns for the financial years 2001/2002 (when a purported resolution was signed effecting a transfer of units), 2002/2003, 2004/2005, 2005/2006, 2012/2013, 2013/2014, 2014/2015, 2015/2016, 2016/2017, 2017/2018 (which is the financial year in which the Property was sold by the trustee), 2018/2019 and 2019/2020.
Marcelle and John submit that Healthsafe's complaint with par 45(b) (as with pars 43(a), 43(b) and 45(a)) appears to be one of a lack of particulars, which is not a ground for strike out under O 20 r 19(1). Accordingly, there is no proper basis to contend that par 45(b) should be struck out under O 20 r 19.
Marcelle and John submit that Healthsafe's complaint with par 45(c) (as with pars 43(a), 43(b), 45(a) and 45(b)) appears to be one of a lack of particulars, which is not a ground for strike out under O 20 r 19(1). They submit that it may sensibly infer that the 'reports' not produced by Healthsafe in the proceeding (except those referred to in the submissions as to par 45(b)) are the financial statements of the Trust and the receipts relevant to the matters contained in the financial statements. Unless such documents are discovered, Marcelle and John contend they cannot provide further particulars. Accordingly, there is no proper basis to contend that par 45(c) should be struck out under O 20 r 19.
Marcelle and John submit that Healthsafe's complaint with par 45(d) (as with pars 43(a), 43(b), 45(a), 45(b) and 45(c)) appears to be one of a lack of particulars, which is not a ground for strike out under O 20 r 19(1). Accordingly, there is no proper basis to contend that par 45(d) should be struck out under O 20 r 19.
Marcelle and John submit that Healthsafe's submissions in relation to par 46 are misconceived. Marcelle and John do not contend, as alleged by Healthsafe, that the remedy available to them is loss and damage which they agree would be nonsensical. By contrast, Marcelle and John claim to have suffered loss and damage occasioned by Healthsafe as trustee's breach of fiduciary duty for which the remedy available to them is, among others, equitable compensation and/or equitable damages. Accordingly, they contend there is no proper basis to contend that par 46 should be struck out under O 20 r 19.
Marcelle and John submit that Healthsafe's complaint with par 51 (as with pars 43(a), 43(b), 45(a), 45(b), 45(c) and 45(d)) appears to be one of a lack of particulars, which is not a ground for strike out under O 20 r 19(1). They submit that the authority referred to by Healthsafe is inapplicable to this case, because Rachael is not a 'stranger' to the Trust or the trustee as contemplated in Blundell v Blundell as she was married to the Deceased, a director of Healthsafe; was herself the sole directing mind and will of the trustee for a period; and was a unitholder in the Trust at all relevant times.
Further, Marcelle and John submit that knowledge is not a material fact required to be pleaded at par 51, as it is a material fact that is pleaded at par 52 of the counterclaim. Accordingly, there is no proper basis to contend that par 51 should be struck out under O 20 r 19.

Consideration

Proscriptive versus prescriptive duties of trustees

The primary issue agitated by both sides on the Application has been whether the allegation in par 41(a) of the Defence and Counterclaim, that Healthsafe owed a fiduciary duty to the beneficiaries of the Trust (including Marcelle and John) to 'take relevant matters into account' is a prescriptive duty of a kind not recognised in Australian law.
With respect to both counsel, the intense focus on whether the pleaded duty is proscriptive or prescriptive has been an unnecessary distraction.
There is, and can be, no real dispute that a trustee owes a fiduciary duty to the beneficiaries of a trust. The fundamental issue, to which par 41(a) is perhaps irrelevant, is the allegation in par 43(b) that Healthsafe breached that fiduciary duty by selling the Property at less than its market value. That claim is, or at least it should have been, a simple one to plead (assuming a sufficient basis in fact), as it is a well‑known aspect of the duty of a trustee to preserve and protect trust property: see Halsbury's Laws of Australia 430 4155; Clay v Clay (1999) 20 WAR 427; [1999] WASCA 8 [33] (reversed on appeal, but not on this point).
Unfortunately, in the present case, Marcelle and John have introduced an unnecessary level of confusion by seeking to cast that claim not as a breach of the trustee's duty to preserve and protect the trust property, but as a breach of a positive duty to have regard to the market value of the Property and the impact of a sale at undervalue on the beneficiaries. The framing of the claim as a breach of that alleged positive duty, as opposed to pleading the alleged default in the conventional form, has led to the Application.
Clearly, this aspect of the counterclaim needs to be repleaded, despite the fact that the counterclaim does otherwise put Healthsafe on notice as to the essential basis of the claim that the Property was sold at an undervalue. Whether the present pleading in par 41(a) of the Defence and Counterclaim is sufficiently defective, on its own, to warrant striking out is ultimately beside the point, because, for the reasons that follow, there are other issues with the counterclaim that require Marcelle and John to give consideration to whether the counterclaim should be completely repleaded.

A bigger problem with the counterclaim ‑ the interests of Meegan

At par 5 of the re‑amended statement of claim, Healthsafe alleges that there are 100 units on issue in the Trust, 51 of which are owned by Marcelle and John and 49 of which are owned by Rachael.
At par 5 of the Defence and Counterclaim, Marcelle and John admit that there are 100 units on issue in the Trust, but they deny the alleged ownership of those units and say that they hold 56 of the units on issue. This allegation is expanded upon at par 40, in which Marcelle and John say that the original allocations of units on formation of the Trust on 7 January 2002 were 10 units to the Deceased and Rachael, 34 units to Meegan, and 56 units to Marcelle and John.
Two documents, which on their face appear to be resolutions affecting the ownership of units in the Trust, have been placed before me as annexures REC-2 and REC-3 to the affidavit of Rachael Eilene Clohessy sworn 21 July 2021, the effect of which is to alter the allocations of units in the Trust on 8 January 2002 to reallocate units such that the Deceased and Rachael held 20 units, Meegan held 29 units, and Marcelle and John held 51 units, and later, on 15 December 2009, authorising sale of Meegan's 29 units to the Deceased and Rachael for consideration of $80,000, to be paid in monthly instalments of $2,000. These would appear to be the 'Resolutions' referred to in par 43(a) of the Defence and Counterclaim. Their authenticity, and their efficacy, is in dispute.

At par 45(a) of the Defence and Counterclaim, Marcelle and John assert that Healthsafe breached the Trust deed by failing to pay or to set aside net income of the Trust to their benefit in proportion to the number of units held by them. They also claim, at par 45(d), that Healthsafe breached the Trust deed by effecting the transfer of Meegan's units to the Deceased and Rachael without offering those units to Marcelle and John in proportion to their unitholdings, as required by the deed.
At par 46, Marcelle and John claim to have suffered loss and damage by reason of Healthsafe's actions, which loss and damage is particularised to include amounts due as distributions according to their respective unitholdings, and loss of the opportunity to acquire Meegan's units.
In their prayer for relief, Marcelle and John claim declarations that the Resolutions are void and of no effect, that the purported transfer of units from Meegan to the Deceased and John is void and of no effect, and that Healthsafe is required to offer Meegan's units to them in proportion to their unitholdings. The fundamental proposition behind these claims is that Meegan still holds 34 units in the Trust.
Marcelle and John then claim, in the alternative, a declaration that the only unitholders of the Trust are Marcelle and John as to 56 units and Rachael as to 10 units. The premise underlying this alternative claim is that Meegan's 34 units have somehow simply ceased to exist (notwithstanding the earlier admission that there are 100 units on issue). No factual basis for those units ceasing to exist is pleaded.
Marcelle and John then go on, in pars B and C of their prayer for relief, to claim a taking of account and payment of amounts due to them as distributions, and equitable compensation. Those claims could only be quantified by reference to the respective unitholdings of each of the unitholders, including Meegan.
Despite the obvious interest of Meegan in those claims, she has not been joined as a party to the counterclaim. I cannot see any way in which the Court could determine those claims without her being a party.

Conclusion

The Application is therefore granted for the reasons stated above as to the significant defects in the counterclaim. As presently drafted the counterclaim consistently fails, as submitted by Healthsafe, to properly plead the basis for the breaches of trustees' duties asserted by Marcelle and John.
However, having considered the parties' submissions on the Application, and the broader issues arising on the face of the pleadings as discussed above, I would also make the following comments on the pleadings in the broader context of my case management powers pursuant to O 4A of the Rules. I consider that the only viable course would be for Marcelle and John to completely replead the counterclaim and to join Meegan, as a defendant to the counterclaim, if the claims affecting her interests are sought to be maintained.
The deficiencies in the counterclaim as it is currently pleaded are simply too great to resolve without those steps. Amendments upon the already extensive amendments previously made would create an unwieldy pleading. A wholesale rewrite is in my view, unfortunately, required; but ultimately that is a matter for the parties to confer on.
At the same time, as I have noted above by reference to only some examples, there are some significant defects in Healthsafe's re‑amended statement of claim and in Marcelle's and John's Defence and Counterclaim.
In my view, as the pleadings currently stand, they do not serve the important function of defining the issues for trial. Whilst there is no present application before me to strike out the re‑amended statement of claim or parts thereof, despite the assertions in the Defence and Counterclaim that parts should be struck out, I do consider that it is also appropriate for me to comment on these issues pursuant to my case management powers and O 4A of the Rules.
In my view, the appropriate course following delivery of these reasons is that counsel for the parties should confer directly, at least by telephone if not face-to-face by video conference or in person, with a view to agreeing orders for the delivery of substituted pleadings that do resolve the defects in the present pleadings. I propose to defer making orders on the Application to give counsel an opportunity to do so. I direct the parties to deliver either an agreed minute of orders, or competing minutes if not agreed, within 14 days.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
LR
Associate to Registrar Whitbread
3 JUNE 2022

(Buss JA, Owen & Newnes JJA agreeing); Betfair Pty Ltd v Racing New South Wales [2010] FCAFC 133;
(2010) 189 FCR 356 [49] (Keane CJ, Lander & Buchanan JJ); Great Southern Finance Pty Ltd (in liq) v
Rhodes [2014] WASC 431 [28] - [29] (Beech J).