Hicks v Hicks - [2016] SASC 50

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Civil)
HICKS v HICKS
[2016] SASC 50
Reasons for Ruling of The Honourable Justice Blue
14 April 2016
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - PLEADINGS
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - AMENDMENT
Application to strike out paragraphs of statement of claim.
The plaintiff sues the defendant for a declaration constructive trust in respect of the defendant’s legal ownership of an ISP business and its proceeds of sale under proprietary estoppel and joint endeavour contribution causes of action. The defendant relies, amongst other grounds of defence, on an Exit Agreement that the defendant pleads precludes the constructive trust claims.
The plaintiff pleads several grounds on which the Exit Agreement does not preclude his constructive trust claims. One ground (pleaded as an alternative) is that the defendant breached and repudiated the Exit Agreement and the plaintiff has terminated it in consequence. The plaintiff pleads in the further alternative that the defendant engaged in unconscionable conduct by structuring a sale of his ownership of the ISP business to avoid a liability to pay monies to the plaintiff under the Exit Agreement.
The defendant applies to strike out the plea of breach, repudiation and termination of the Exit Agreement because it is impermissibly inconsistent with the plea of unconscionable conduct.
Held:
1.      It may potentially be impermissible for a party to plead inconsistent allegations of fact in the alternative when the party seeks to advance factually mutually exclusive cases when to that party's knowledge one of the cases must false (at [16]).
2.      The mere fact that a party pleads factually inconsistent cases in the alternative does not make the pleading impermissible (at [16]).
3.      In the present case, by the alternative pleas, the plaintiff is not advancing cases that are factually mutually exclusive when to his knowledge one of those cases must be false (at [18]).
4.      The pleading of the plaintiff cases is permissible (at [22]).
5.      Application dismissed (at [24]).
Supreme Court Civil Rules 2006 (SA) 98, referred to.
Brailsford v Tobie (1988) 10 ALT 194; Issitch v Worrell (2000) 172 ALR 586; KJ Rentfrey Nominees Pty Ltd v Crystalcorp Developments Pty Ltd [2000] SASC 373; Riverland Fruit Cooperative Ltd (in liquidation) v 007 953 380 Pty Ltd [2008] SASC 258, discussed.

HICKS v HICKS
[2016] SASC 50
Civil:
BLUE J:

The trial of this action commenced on 11 April 2016.
On 8 April 2016, the plaintiff filed a fourth statement of claim pursuant to general permission to amend given on 7 April 2016. At the commencement of the trial, the defendant made an oral application to strike out paragraphs 169 and 170.2 of the fourth statement of claim on the ground that they are impermissibly inconsistent with paragraphs 163 to 167 of the statement of claim.
Because the plaintiff had not formulated the amendments when permission to amend was granted, I approach the application on the basis that the onus lies on the plaintiff to justify the amendments. However, given the ground of opposition to the amendments, I am required to determine whether the two sets of paragraphs are impermissibly inconsistent and nothing turns on any question of onus.
The plaintiff’s principal claims are for a constructive trust in respect of the defendant’s legal ownership (via corporate entities) of an Internet Service Provider business (the ISP business), and its proceeds of sale, under proprietary estoppel and joint endeavour contribution causes of action.
The defendant denies the claims and pleads a number of affirmative defences. One affirmative defence is that an Exit Agreement made in August 2012 precludes the constructive trust claims. Part of the consideration for the plaintiff entering into the Exit Agreement was a promise by the defendant to pay $400,000 to the plaintiff in the event of a sale to a third party of shares in the company that owned the ISP business. I interpolate that there is an issue, or a potential issue, whether on the proper construction of the Exit Agreement payment was due in the event of a sale of shares in the holding company or only in the event of a sale of shares in the subsidiary company.
The plaintiff pleads that, on its proper construction, the Exit Agreement does not preclude his constructive trust claims at all (paragraph 142) or alternatively in the particular circumstances that have occurred since it was entered into (paragraph 170.1.1). The plaintiff pleads in the first alternative that the Exit Agreement was induced by misleading or unconscionable conduct and should be set aside (paragraphs 148 to 162). The plaintiff pleads in the second alternative that the parties agreed in July/August 2013 to abandon the Exit
Agreement or the relevant parts thereof (paragraph 170.1.2 and paragraph 169). The defendant does not complain of any inconsistency in these pleas.
The plaintiff pleads in the third alternative that in July/August 2013 the defendant committed a fundamental breach of and renounced the Exit Agreement and the plaintiff has terminated it in consequence (paragraph 170.2 and paragraph 169).
The plaintiff pleads in the final alternative that, if his constructive trust claims are precluded by the Exit Agreement and on its proper construction no amount was payable under the Exit Agreement on a sale of shares in the holding company as opposed to the subsidiary company, the defendant engaged in unconscionable conduct by procuring the conversion of an offer by a third party for shares in the subsidiary company into an offer for shares in the holding company to avoid a liability to pay $400,000 to the plaintiff under the Exit Agreement (paragraphs 163 to 167).
The defendant contends that the last mentioned plea in paragraphs 163 to 167 proceeds on the premise that the Exit Agreement remains on foot and is impermissibly inconsistent with paragraphs 170.2 and 169 which plead that the Exit Agreement has been terminated.
Rule 98(6) and (7) of the Supreme Court Civil Rules 2006 (SA) provides:
(6) Allegations of fact in a pleading must be mutually consistent.
(7) However, a party may make inconsistent allegations of fact in the alternative.
The defendant contends that, notwithstanding subrule 98(7), it is impermissible in some circumstances to plead inconsistent allegations of fact in a pleading.
In Brailsford v Tobie[1], the plaintiff sued for £2,350 as the purchase price of a hotel business pursuant to a deed. The defendant pleaded at paragraph 3 of her defence that the underlying agreement was for £2,200 and the wrong price was inserted into the deed by mutual mistake. She pleaded at paragraph 4 that she agreed to £2,350 being inserted into the deed instead of £2,200 because the plaintiff wanted to deceive her fiancé into believing that she was financially better off than she was in fact. Holroyd J ruled that this was impermissible and the defendant must elect between these mutually exclusive cases. Holroyd J said:
I think it would be most improper to allow the defendant to plead as she has done. The actual facts must be within her own knowledge, and that being so she has set up two sets of facts inconsistent with one another. If this were allowed it would be permitting a party knowing the facts to deliberately place on the record statements, one or other of which must be known to be a lie. This, in my opinion, ought not to be allowed.[2]
[1] (1888) 10 ALT 194.
[2] (1888) 10 ALT 194 at [195] per Holroyd J.
In Issitch v Worrell[3], a bankruptcy trustee sued the bankrupt’s wife to recover $90,167 as a settlement under section 120 of the Bankruptcy Act 1966 (Cth). The trustee’s case at trial was that the bankrupt’s wife used the money to construct a house on her own land. The wife’s case and evidence at trial was that a minority of the money was spent on the bankrupt and a joint holiday to New Zealand and the majority was returned to the bankrupt. The trial Judge rejected the wife’s evidence and upheld the trustee’s claim. On appeal, she contended that the trustee should have failed because he did not plead absence of consideration. This point was not taken by her at trial. On appeal the wife contended that, if the trustee had pleaded absence of consideration, she would have adduced evidence that she spent the money on the house in part to benefit the bankrupt by making modifications to suit him. The Full Court of the Federal Court held that she was not entitled to make that contention. Drummond J (with whom Spender and Katz JJ agreed) said:
But once the appellant decided to answer the claim made on her in respect of the [$90,167] in the way she did, she was not entitled thereafter to set up in the alternative the inconsistent answer she now suggests she would also have relied on, if only absence of consideration had been specifically pleaded by the trustee. A party can as a general rule plead inconsistent sets of facts in the alternative, but not where one of those sets must be known to the party to be false. It has long been recognised that such a pleading is embarrassing and will be struck out. In Brailsford v Tobie, the defendant pleaded two factually inconsistent accounts in justification for not having paid the moneys claimed by the plaintiff. Holroyd J ordered that the defendant elect which one of these two cases she would maintain.[4]
[3] [2000] FCA 477, (2000) 172 ALR 586.
[4] (2000) 172 ALR 586 at [32] per Drummond J (with whom Spender and Katz JJ) (Citiations omitted).
In Riverland Fruit Cooperative Ltd (in liquidation) v 007 953 380 Pty Ltd[5] Bleby J said:
…merely because a fact is pleaded in the alternative does not mean that an inconsistency can be avoided. Particularly is this so where the inconsistent please relate to the state of knowledge or state of mind of the party concerned.[6]
and went on to quote from the passages from Brailsford v Tobie and Issitch v Worrell extracted above. Bleby J did not reach any conclusion whether the pleading in that case was impermissible because its vagueness and incompleteness justified its strikeout in any event.
[5] (2008) SASC 258.
[6] (2008) SASC 258 at [20] per Bleby J.
These cases do not identify the juristic basis on which it is impermissible to plead inconsistent allegations of fact in the alternative. While Brailsford v Tobie[7] dates back to the nineteenth century, it is likely that today the juristic basis for its application would be regarded as abuse of process.
[7] (1888) 10 ALT 194.
These cases do not identify the precise circumstances in which it is impermissible to plead inconsistent allegations of fact in the alternative. In each case, a party sought to advance (or in Riverland Fruit Cooperative Ltd (in liquidation) v 007 953 380 Pty Ltd the plaintiff contended that the defendant sought to advance) cases that were factually mutually exclusive when as a matter of logic to the knowledge of the party one of those cases must be false. It is evident why such conduct might be regarded as an abuse of process. It does not follow that these will necessarily be the only circumstances in which a party is not permitted to advance, even in the alternative, factually inconsistent cases, but the mere fact that allegations made in the alternative are factually inconsistent does not render the pleading impermissible.
In the present case, the pleas at paragraphs 169 and 170.2 are that the defendant committed a fundamental breach of and renounced the Exit Agreement and the plaintiff has by his pleading terminated it in consequence. Whether the defendant committed a breach of or repudiated the Exit Agreement involves a question of objective fact as to the defendant’s conduct and questions of law as to the construction of the Exit Agreement and the consequences of the defendant’s conduct. Whether the plaintiff’s purported termination of the Exit Agreement is effective involves questions of law. These pleas do not involve the plaintiff’s state of mind or a fact specifically within the plaintiff’s knowledge.
The pleas at paragraphs 163 to 167 are premised on the assumption that the Exit Agreement has not been terminated either because the defendant did not breach or repudiate it or because the plaintiff was not entitled to terminate it. They involve questions of law as to the construction of the Exit Agreement and questions of objective fact and law as to whether the defendant’s conduct amounts to unconscionable conduct and, if so, caused loss to the plaintiff of $400,000. There is nothing in the pleading on the basis of which it could be said that one or other of the alternative pleas in paragraphs 169 and 170.2 and paragraphs 163 to 167 must to the knowledge of the plaintiff be false or that they are mutually factually inconsistent in the sense described above. Paragraphs 163 to 167 simply proceed on the assumption, common to all cases of permissible alternative pleas, that the plaintiff fails on a more primary case.
The defendant relies on the judgment of Judge Burley in KJ Renfrey Nominees Pty Ltd v Crystalcorp Developments Pty Ltd[8]. In that case, the plaintiff pleaded, and the defendant admitted, that the parties had entered into an an arbitration agreement. The plaintiff pleaded that a purported award by an arbitrator pursuant to the agreement was not an award or should be set aside and those two issues were ordered to be heard and determined at a preliminary trial. On the first day of trial, the defendant applied for permission to amend its defence to plead in the alternative that, if the agreement did not comprise an arbitration agreement, it was an agreement for a binding expert determination. If the amendment were permitted, issues raised by the amended defence would not be determined until the subsequent trial. The defendant did not seek to withdraw its admission that it had entered into an arbitration agreement. Judge Burley held[9]:
That means that I will proceed to a determination of the issues raised by paragraphs 21 to 24 of the statement of claim on the basis that an arbitration agreement has been entered into but, if the amendment is allowed, the defendant would be in a position to argue in the alternative at the subsequent parts of the trial that such an arbitration agreement had not been entered into. I do not think that the defendant should be permitted to proceed in such a way.
[8] [2000] SASC 373.
[9] [2000] SASC 373 at [9] as per Burley J.
Judge Burley added[10]:
Even if the matter is not as I have characterised it in these reasons, I have no doubt that the type of pleading which is sought to be pursued by the defendant by way of an amendment is an inconsistent pleading which is not contemplated by the cases as being allowable. An appropriate test in most, if not all, cases is to ask whether the facts underlying the alternatives are the same. If they are, the alternative pleading is probably allowable; if not, the alternative should not be allowed because a factual contradiction arises. It does so in this case: the defendant cannot say that it did and that it did not enter into the arbitration agreement.
[10] [2000] SASC 373 at [10] as per Burley J.
In the present case, the defendant contends that, applying the test whether the facts underlying the alternatives are the same, it is apparent that they are not and the plaintiff is pleading impermissibly inconsistent allegations of fact. However, leaving aside alternative propositions of law based on alternative legal characteristics of the same facts, all inconsistent allegations of fact in the alternative permitted by subrule 98(7) would fail the test formulated by Judge Burley. An affirmative answer to the test entails that an alternative plea is permissible but a negative answer does not entail that an alternative plea is impermissible: something more is required to make it impermissible.
There is nothing which renders the alternative pleas in paragraphs 163 to 167 impermissibly inconsistent with the pleas in paragraphs 169 and 170.2 of the fourth statement of claim.
The ground advanced by the defendant in support of his strike out application fails.
During the course of argument, some infelicities were identified in the drafting of paragraphs 163 to 170. Subject to these matters being addressed, I dismiss the defendant’s strike application.