Hollins v Qbit Trading Pty Ltd - [2020] WADC 7

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION:   PERTH
CITATION:   HOLLINS -v- QBIT TRADING PTY LTD [2020] WADC 7
CORAM:   PRINCIPAL REGISTRAR MELVILLE
HEARD:   13 DECEMBER 2019
DELIVERED          :   16 JANUARY 2020
FILE NO/S:   CIV 2036 of 2019
BETWEEN:   CRAIG ANTHONY HOLLINS
Plaintiff
AND
QBIT TRADING PTY LTD
First Defendant
UPTIME COMPUTER MANAGEMENT PTY LTD
Second Defendant
DAVID MUSARRA
Third Defendant
FABIO SUFFELL
Fourth Defendant

Catchwords:

Application to strike out statement of claim - Duties to unrepresented litigant - Lifting the corporate veil

Legislation:

Rules of the Supreme Court 1971 (WA)

Result:

Plaintiff refused leave to file the proposed statement of claim

Representation:

Counsel:

Plaintiff	:	In Person
First Defendant	:	Mr C S Williams
Second Defendant	:	Mr C S Williams
Third Defendant	:	Mr C S Williams
Fourth Defendant	:	Mr C S Williams

Solicitors:

Plaintiff	:	Not applicable
First Defendant	:	Solomon Brothers
Second Defendant	:	Solomon Brothers
Third Defendant	:	Solomon Brothers
Fourth Defendant	:	Solomon Brothers

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

Automotive, Food, Metals, Engineering, Printing & Kindred Industries Union of Workers - Western Australian Branch v Bell-A-Bike Rottnest Pty Ltd [2005] WASCA 157
Bertola v Australian and New Zealand Banking Group Ltd [2016] WASC 165
Day v William Hill (Park Lane) Ltd [1949] 1KB 632
Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692
Mutual Life & Citizens Assurance Co Ltd v Evatt (1970) 122 CLR 628
Prest v Petrodel Resources Ltd [2013] UKSC 34
Southern Wine Corporations Pty Ltd (in liq) v Frankland River Olive Co Ltd [2005] WASCA 236

PRINCIPAL REGISTRAR MELVILLE:

Background

On 4 June 2019 the plaintiff commenced proceedings against the four defendants by way of a generally indorsed writ of summons. On 24 June 2019 the plaintiff filed a statement of claim and on 5 July 2019 the third and fourth defendants applied to the court by way of chamber summons seeking an order that the statement of claim be struck out. On 12 July 2019 Registrar Hewitt ordered that the first and second defendants be joined as applicants to the application to strike out the statement of claim, that the name of the first defendant be amended to QBit Trading Pty Ltd and that the name of the second defendant be amended to Uptime Computer Management Pty Ltd.
The summons failed to comply with the Rules of the Supreme Court1971 (WA) (RSC) at O 20 r 19(3)(b). However, the plaintiff has not taken issue with this and it is apparent from the outline of submissions filed by the defendants in support of their application that application is made on the basis:
1.The issues raised in the statement of claim have already been decided against the plaintiff in Supreme Court action 2945 of 2015 and that therefore the plaintiff is barred from now bringing same issues before this court by reason of the doctrine of res judicata, cause of action estoppel, issue estoppel and/or Anshun estoppel.
2.That the statement of claim fails to disclose a cause of action and/or it is embarrassing, citing RSC O 20 r 19 (1)(a) and r 19(1)(c).
On 4 September 2019 Deputy Registrar Harman ordered the statement of claim be struck out, the plaintiff file and serve any proposed statement of claim within 14 days and the application otherwise be adjourned to 25 September 2019.
I am informed by counsel that the application proceeded before Deputy Registrar Harman only on the issue of whether the statement of claim failed to disclose a cause of action with the question of whether the statement of claim should be struck out by reason of res judicata or estoppel being put to one side until, if and when, a statement of claim is filed that discloses a cause of action. In any event, the defendants' application proceeded before me on 13 December 2019 on the same basis.
The application is supported by affidavits of Adam Forrest Roberts sworn 5 July 2019 and 8 August 2019 (which are not relevant for the purposes of this application as they deal with the estoppel arguments) 12 November 2019 and 12 December 2019.
Generally affidavit material is not admissible on an application to strike out on the basis the pleading does not disclose a cause of action.[1] However, a document referred to in a pleading may be placed before the court by way of an affidavit.[2] Affidavit evidence is otherwise admissible to support an application strike out on the other grounds set out in RSC O 20 r 19(1).
[1] RSC O 20 r 19(1)(a).
[2] Southern Wine Corporations Pty Ltd (in liq) v Frankland River Olive Co Ltd [2005] WASCA 236 [51]; Day v William Hill (Park Lane) Ltd [1949] 1KB 632 [639].

The evidence

The affidavit sworn 12 November 2019

This affidavit annexes a series of emails whereby the plaintiff provided to the defendants' solicitors various iterations of an amended statement of claim attempting to address issues of concern that had been raised previously by the defendants' solicitors between the period 18 September 2019 and 18 October 2019. It also annexes a copy of the 'business succession agreement' referred to in the final version of the statement of claim for which the plaintiff now seeks leave to file ('the BSA'). The special conditions of the BSA at item 14 of sch 1 provide:
The Trustee and the Trust deed forms part of this agreement and a copy of which is now annexed to the Fourth Schedule (the 'Trust Deed').
However, no such Trust Deed is annexed to the Fourth Schedule.

The affidavit sworn 12 December 2019

This affidavit again annexes a series of email communications between the parties between the period 6 December 2019 and 12 December 2019. It also annexes at page 24 the current version of the statement of claim the plaintiff now seeks leave to file dated 3 December 2019.

The proposed amended statement of claim

The proposed statement of claim seeks to plead four causes of action constituted by or in relation to:
(a)the repayment of $171.60 taken from the plaintiff's personal Lotterywest account by the third and fourth defendants;
(b)$50,000 by way of compensation for the unlawful termination of his employment contract by the first and second defendants;
(c)the repayment of $75,104.50 being the balance of monies allegedly loaned by the plaintiff to the first defendant; and
(d)the sum of $474,814.33 being the difference between a fair valuation of the Hollins Family Pty Ltd interest in the Qbit Trading Trust and what in fact the defendants paid for it.
In his prayer for relief the plaintiff seeks orders for payments of the above amounts and alternatively;
(a)specific performance; and
(b)damages to be assessed.
By the RSC O 20 r 8 the statement of claim is required to contain, and contain only, a statement in a summary form of the material facts, the material facts being those facts essential to establishing the cause of action.
Rule 8(2) goes on to provide that the effect of any document referred to in the pleading must, if material, be briefly stated.
Whilst the pleading rules require the pleading in summary form of material facts, given the purpose served by the rules of pleading and the requirement to file a statement of claim, the pleading must nevertheless contain the necessary particulars of any claim so as to enable the reader, and in this case the defendants, to understand the nature of the case being brought against them. Order 20 r 13 provides, without prejudice to the generality of the above:
Where a party pleading alleges any condition of the mind of any person, whether any disorder or disability of mind or any malice, fraudulent intention or other condition of mind, except knowledge, particulars of the facts on which the party relies must be pleaded.

The principles to be applied on the application

In this regard I can do no better than refer to the comments of Martino J in Bertola v Australian and New Zealand Banking Group Ltd [2016] WASC 165 [18] - [21] where he said:
18In considering the applications and the submissions, I need to bear in mind that the plaintiffs are not legally represented. I need to ensure that I consider the statement of claim carefully and bear in mind that a poorly expressed or unstructured document prepared by a litigant in person can contain viable causes of action. If the statement of claim does contain a viable cause of action, then I should not summarily terminate the action. Due allowance must be made for the fact that the plaintiffs are not legally represented. Some leniency is required in relation to compliance with the rules. However, the defendants are entitled, as a matter of fairness to be adequately informed of the case they have to meet, just as the respondent to an appeal is so entitled.
19The principles applicable to an application to strike out a statement of claim on the ground that it discloses no reasonable cause of action were summarised by Master Staples in Kimberley Downs Pty Ltd v Western Australia:
(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] WALawRp 44; (1912) 14 WALR 191 per Burnside J at p 195.
(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 [1904] VicLawRp 14; (1903) 29 VLR 102 per Holroyd J at p 106.
(3)Great care must be exercised to ensure that a 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] HCA 69; (1964) 112 CLR 125 per Barwick CJ at p 130.
(4)But 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 possibly succeed: ibid at p 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 per Burt CJ (1984, unreported, Lib No 5485).
(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 [1938] ArgusLawRp 58; (1982-1983) 44 ALR 365 per Master Allen at 373.
20Material which is scandalous will not be struck out unless it is also irrelevant.
21A pleading may be struck out pursuant to O 20 r 19(1)(c) RSC on the ground that it may prejudice, embarrass or delay a fair trial of this action. This phrase is a composite one which imports the notion the character of the pleading is such as to make the fair trial of the action more difficult to achieve, that the trial will be unduly protracted or delayed or the pleading is calculated to prejudice the legal process. Pleadings can be struck out on this ground 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 party's case with reasonable particularity or they raise a case in terms which are simply too general.
(footnotes omitted)
It is also necessary to bear in mind that in the context of an application to strike out a pleading on the basis it fails to disclose a cause of action, the question is whether it would be open to the plaintiff having regard to what is pleaded, to prove facts at the trial which would constitute a cause of action.[3]
[3] Mutual Life & Citizens Assurance Co Ltd v Evatt (1970) 122 CLR 628, 631; Automotive, Food, Metals, Engineering, Printing & Kindred Industries Union of Workers -Western Australian Branch v Bell-A-Bike Rottnest Pty Ltd [2005] WASCA 157 [54].
This marks a departure from the old rules relating to pleading that existed before the Judicature Acts that resulted in meritorious cases being dismissed on technical pleading rules or forms, and the current approach of the courts to deal with the merits of the claim where it can clearly be seen what one party or the other is saying and why, and in the case of a statement of claim, that a cause of action is disclosed or it raises a novel case that warrants hearing by the court and is not patently untenable.
To start to understand the proposed statement of claim it is necessary to have regard to the original statement of claim that was struck out, the BSA referred to in the proposed amended statement of claim and the plaintiff's submissions.
Briefly and broadly speaking, it seems that the plaintiff is the director of a company known as Hollins Family Pty Ltd which was a unit holder in a trust, the third defendant was the director of a company known as Mussara Family Pty Ltd which was also a unit holder in the trust and that the fourth defendant was similarly a director in a company known as Suffell Family Pty Ltd which held units in the trust. It appears the plaintiff alleges that the units held by Hollins Family Pty Ltd in the trust were acquired by the other unit holders and as a result of information provided to the valuer by the directors of the second and third defendants for an amount less than the true value of those units, and in contravention of the terms of the BSA.
The BSA in fact is a deed between Qbit Trading Pty Ltd as trustee, Mussara Family Pty Ltd as Unitholder A as trustee for the Mussara Family Trust, Suffell Family Pty Ltd as Unitholder B as trustee for the Suffell Family Trust and Hollins Family Pty Ltd as Unitholder C as trustee for the Hollins Family Trust. The BSA is undated.
The 'Trust' is defined in the BSA as meaning:
The unit trust known as QBIT Trading Trust a deed for which is dated 12 September 2013 which was executed by Unitholder A, Unitholder B, Unitholder C and the Trustee as trustee, a copy of which is now annexed in the Fourth Schedule ('Trust Deed').
The execution clause shows the third defendant signing the deed in the capacity of director of Mussara Family Pty Ltd, the fourth defendant signing the deed in the capacity of director of Suffell Family Pty Ltd and the plaintiff signing the deed in the capacity of director of Hollins Family Pty Ltd. The plaintiff and the third defendant have also signed the deed in their capacities of directors of QBit Trading Pty Ltd.
Nowhere in the BSA is there reference to the second defendant.
The action was commenced by Craig Anthony Hollins as plaintiff. However, the proposed statement of claim seeks to introduce as a second plaintiff the 'Hollins Family Pty Ltd'. No application has been made for the joinder of a further plaintiff to the action and in the absence of an order to that effect the proposed statement of claim is fatally flawed.
The proposed statement of claim also seeks to change, again, the description of the parties. More particularly, the heading to the proposed statement of claim seeks to ascribe the ACN 165 436 304 to QBit Trading Pty Ltd and the ACN 623 278 705 to Uptime Computer Management Pty Ltd. The significance of this observation is that the ACN number for Uptime Computer Management Pty Ltd is different to the ACN's ascribed to the trustee companies named in the BSA. Uptime Computer Management Pty Ltd therefore is clearly a very different company and that there can be no suggestion that it is one of the parties to the BSA albeit differently named.
Further, insofar as the plaintiff seeks to claim compensation in respect of his allegation that the first and second defendant acquired the units of Hollins Family Pty Ltd for less than the true value of those units, it is to be observed:
1.Uptime Computer Management Pty Ltd is not a party to the BSA.
2.The plaintiff never owned the units and cannot have suffered a loss. The units were owned by Hollins Family Pty Ltd and the loss, if any, belongs to that company. A company is in the eyes of the law a separate legal entity, separate from its shareholders and separate from its directors.

The lottery money

At par 5 of the proposed statement of claim the plaintiff pleads that in May 2015 he operated a Lotterywest account and that the third and fourth defendants unlawfully accessed that account and paid the balance to their own bank account.
In my opinion, sufficient is pleaded there to enable the plaintiff to prove facts at the trial which will establish the third and fourth defendants took his money without his consent and that he is entitled to its return. Whilst the pleading is inelegant and the allegation that the third and fourth defendants 'unlawfully accessed the account by assuming the identity of the first plaintiff', might beg further questions as to how this was done, those questions can be answered by further and better particulars. In my opinion, sufficient is there to enable the third and fourth defendants to appreciate the nature of the case being brought and to prepare their defence. I would not strike out this pleading.

The dismissal

At par 1 and par 2 of the proposed statement of claim the plaintiff pleads that he was employed by the first defendant and the second defendant and that the third and fourth defendants were at all material times directors of the companies. He pleads he is employed firstly by Uptime Computer Management Pty Ltd then, as of 2013, Qbit Trading Pty Ltd. He pleads he was employed by those defendants since their inception in 2006 and 2013 pursuant to a verbal contract which was subject to the National Employment Standards. He then pleads in breach of the National Employment Standards the defendants terminated his employment on 5 May 2015. It is sufficiently clear that the breach is said to being constituted by 'arbitrary dismissal without cause'.
In my opinion, the pleading is prejudicial, embarrassing and likely to delay the fair trial of the matter in that the allegation is pleaded in a high level of generality and confusing. It is not clear whether he is alleging he had concurrent contracts of employment with the first and second defendant or whether the contracts were consecutive contracts of employment. If it is the latter position then clearly the plaintiff does not have a claim for breach of an employment contract with Uptime Computer Management Pty Ltd who was not his employer at the time of the dismissal.
Further, he does not explain how or why the alleged verbal contract was subject to the National Employment Standards and does not plead what provisions, if any, within the National Employment Standards protected him from 'arbitrary dismissal without cause'. Nor does he provide with the sufficient particularity which is required in order for the defendants to appreciate the nature of the case they have to defend, as to what constituted the 'arbitrary dismissal without cause'.
Further, having alleged he was employed by the first and second defendant, he fails to plead any facts which disclose a cause of action for breach of the terms of the contract of employment and the National Employment Standards against the third and fourth defendants.
This pleading should be struck out.

The loan

At par 4 of the proposed amended statement of claim the plaintiff alleges that he had lent:
The first defendant $153,134.50 being the share of profits of the companies allocated to the unit holder but not paid by the companies - instead a loan back to the companies was created and the balance of that loan reduced as payments were made. In late September the plaintiffs received payment of $78,030 purporting to be a complete settlement of the loan.

It is apparent from his prayer for relief that he claims the difference between the $153,134.50 and the $78,030.
Having regard to the pleading and taking it at its highest, money standing to the credit of Hollins Family Pty Ltd which is alleged to have been loaned back to the first and second defendants and not repaid, can only be regarded as a wrong done to Hollins Family Pty Ltd. It is Hollins Family Pty Ltd who should take action against the wrongdoers. The alleged non-repayment of the alleged loan does not give rise to a cause of action in the plaintiff. This alone is sufficient to strike out the paragraph.
However, I further observe the paragraph contains other inherent contradictions and confusions. It is not possible to reconcile the statement that the plaintiff loaned the money to the first defendant with the statement that a 'loan back to the companies was created'.
Where the second defendant fits into this is impossible to see. Similarly, it is impossible to reconcile the statement that the plaintiff loaned the money with the statement that 'In late September the plaintiffs received payment of $78,030 purporting to be a complete settlement of the line' (my underlining). There is only one plaintiff.
It is clear that the plaintiff has conflated his interests with those of Hollins Family Pty Ltd. This paragraph should be struck out.

The acquisition at undervalue

At par 3 of the proposed statement of claim the plaintiff pleads the plaintiff's share of the Qbit Trading Trust was transferred to 'them' without the authorisation of the plaintiffs. Who 'them' is or are is not clear.
At par 6 of the proposed statement of claim the plaintiff sets out express written material terms of the BSA. However he does not plead what, if any, of those terms were breached or what loss or damage was suffered as a result of any breach, although one might guess at it having regard to the prayer for relief. However, neither the defendants nor the court should be required to guess.
Further, he pleads that in September 2015 the third and fourth defendants used the power of attorney right granted in the BSA despite being told by the first plaintiff not to do so. Again, there is only one plaintiff in this action and in any event the significance of the third and fourth defendants using the power of attorney in the circumstances described, or all, is not pleaded and it is difficult to see how it is relevant and it is difficult to reconcile with what is pleaded at par 6(f):
That each unit holder granted the other unit holder an irrevocable power of attorney to allow the normal business operation to continue in his absence.
Again, it is clear from the pleadings and in particular the BSA that the agreement is between the companies and not the people behind them. Accordingly the breach of the terms of the BSA by one or more parties giving rise to loss and damage by another party can only be actionable by the injured party. In this case if a contractual wrong has been done to Hollins Family Pty Ltd by the defendants it is Hollins Family Pty Ltd that has the cause of action and not the plaintiff.

Lifting the corporate veil

The plaintiff also states, from the bar table, that his action against the third and fourth defendants is brought on the basis that they are the directors of the first and second defendants and they are the ones that have the deep pockets. In other words, the plaintiff seeks to bring a case on the basis that the first and second defendant company should be treated as the alter egos of the third and fourth defendants, that the acts of the first and second defendants should be treated as the acts of the third and fourth defendants with no regard being paid to the legal status of these companies being that of separate legal entities. Colloquially this is known as lifting the 'corporate veil'.
The fact that the plaintiff seeks to bring a case against the third and fourth defendants on this basis and on these facts is not discernible from the proposed statement of claim, but is only ascertained from oral submissions made from the bar table, eloquently demonstrates the inadequacy of the proposed statement of claim.
In some circumstances it would be appropriate to refuse to strike out a case brought against the directors of a corporation that is alleged to have been used as a front for, or a cloak to cover, wrongdoing or some form of unlawful action.
In Prest v Petrodel Resources Ltd [2013] UKSC 34 it was said:
I conclude that there is a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the damage that they would otherwise have obtained by the company separate legal personality
In those circumstances it may be appropriate that an argument to that effect be allowed to proceed to trial, notwithstanding the challenges it would face and the doubts as to the existence of such a principle.
However, in this case I am unable to see anything in the pleadings that provide a factual foundation upon which such an argument might even start to be applied.
Even if a case could be allowed to proceed against the third and fourth defendants on the basis of some sort of wrongdoing by them that would justify piercing the corporate veil, in my view the plaintiff is still faced with the impossibility of lifting the corporate veil that sits between he and Hollins Family Pty Ltd so as to enable him to have any cause of action against the third and fourth defendants rather than the companies of which they are directors.
In Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692, 694 ‑ 695, Young J said:
Unfortunately, it very often happens in cases in this court that a person has arranged his affairs for commercial or fiscal reasons employing a particular structure, which with respect to creditors and the Government he expects to be recognized as no sham, but when it comes to a dispute with his former wife or former business associates it is not in his interests to maintain the structure and he pleads before this Court that one must not look at the structure at all but rather at the 'realistic' or 'practical' effect of what has happened. I do not find this sort of submission attractive. So long as the law permits people to erect structures which have meaningful legal consequences then if a person elects to erect such a structure he must take the consequences of such erection for better, for worse, for richer or poorer, in commercial sickness or commercial health.
In this case, if there is a cause of action, it belongs to Hollins Family Pty Ltd and not the plaintiff. The plaintiff should be refused leave to file the proposed statement of claim.

I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
DH
Court Officer
16 JANUARY 2020