Hood Group Investments No.9 Pty Ltd v Advanced Braking Technology Ltd - [2011] WADC 29

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: HOOD GROUP INVESTMENTS NO.9 PTY LTD -v- ADVANCED BRAKING TECHNOLOGY LTD [2011] WADC 29

CORAM: PRINCIPAL REGISTRAR GETHING

HEARD: 21 FEBRUARY 2011

DELIVERED : 21 FEBRUARY 2011

FILE NO/S: CIV 3821 of 2009

BETWEEN: HOOD GROUP INVESTMENTS NO.9 PTY LTD
Plaintiff
AND
ADVANCED BRAKING TECHNOLOGY LTD
Defendant
STANLEY HOLMES
Third Party

Catchwords:

Practice and procedure - Strike out application - No reasonable cause of action

Legislation:

Nil

Result:

Application allowed - Defendant to supplement particulars

Representation:

Counsel:

Plaintiff:     Mr B J Buckley
Defendant:     Mr P N Poliwka
Third Party                   :     Mr B J Buckley

Solicitors:

Plaintiff:     Gadens Lawyers
Defendant:     Q Legal
Third Party                   :     Gadens Lawyers

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

Day v William Hill (Park Lane) Ltd [1949] 1 KB 632
Dey v Victorian Railways Commissioners (1949) 78 CLR 62
Kimberley Downs Pty Ltd v State of Western Australia (Unreported, WASC, Library No 6414, 25 August 1986)
Mantaray Pty Ltd v Brookfield Breeding Co Pty Ltd [1992] 1 Qd R 91
Neilson v City of Swan [2006] WASCA 94
Remmington v Scoles [1897] 2 Ch 1
Southern Wine Corp Pty Ltd (in liq) v Frankland River Olive Co Ltd [2005] WASCA 236

PRINCIPAL REGISTRAR GETHING: [This judgment was delivered extemporaneously on 21 February 2011 and has been edited from the transcript.]

The application before me is an application by the plaintiff and third party dated 6 December 2010. In the application, the plaintiff seeks to strike out par 6(b) of the defence, and the third party seeks to strike out par 5 of the statement of claim in the third party proceedings.
The context of the application is the plaintiff's claim that under a contract said to have been made on or about 20 November 2003, the plaintiff loaned to the defendant 200,000 shares in Betcorp Limited, a listed company. The terms of the loan were that the defendant agreed to pay the plaintiff $140,000 or return the 200,000 shares in Betcorp Limited to the plaintiff by 20 December 2003.
The defendant's case is, in summary terms, that the transfer was in partial satisfaction of a debt owed by a company apparently related to the plaintiff, Hood Group Holdings Ltd (HGH), in the amount of approximately $3.7 million.
In support of the application, the plaintiff and third party filed an affidavit of their solicitor, Mr Buckley, sworn 11 January 2011, and a second affidavit of Mr Buckley sworn 18 January 2011.
In looking at the relevant law to apply to the present application, a key issue is the extent to which the court can look at documents incorporated into a pleading. The starting point is that, with one caveat, is not permissible when examining a pleading to see whether it complies with the Rules of the Supreme Court 1971 (WA) (RSC) to look at documents going behind the pleading. Specifically, when considering whether a pleading discloses a reasonable cause of action, all the facts alleged in the relevant pleading must be accepted as true: Kimberley Downs Pty Ltd v State of Western Australia (Unreported, WASC, Library No 6414, 25 August 1986), affirmed in Neilson v City of Swan [2006] WASCA 94 [18]. No evidence is admissible on an application of this kind: RSC O 20 r 19(2); Southern Wine Corp Pty Ltd (in liq) v Frankland River Olive Co Ltd [2005] WASCA 236 [51].
Where the issue is whether a pleading sufficiently discloses the case that the opponent has to meet, the pleading must be reviewed on its face to determine whether it is sufficient. Evidence may be led of an abuse of process or that a defence is a sham, but not as to whether the allegations contained in the pleading are improbable, false or untrue: Dey v Victorian Railways Commissioners (1949) 78 CLR 62, 109; Remmington v Scoles [1897] 2 Ch 1, 7.
The caveat is where the pleading expressly refers to a document. In that situation, RSC O 26 r 8(2) provides as follows:
Any party to a cause or matter shall be entitled at any time to serve a notice on the other party in whose pleadings or affidavits reference is made to any document requiring him to produce that document for inspection by the party giving the notice.
Where the document is referred to in a pleading, the purpose of the rule is to put the party requesting the document in the same position or advantage as if the document had been fully set out in the pleading: Mantaray Pty Ltd v Brookfield Breeding Co Pty Ltd [1992] 1 Qd R 91, 92, 93, 97 and 98. It follows that if an allegation that purports to derive from a document referred to expressly in the pleading is not supported by what is contained in the document, the allegation is liable to be struck out: Day v William Hill (Park Lane) Ltd [1949] 1 KB 632, at 639.
Dealing first with the allegation in the defence, the allegation under challenge by the plaintiff is contained in par 6(b) of the defence dated 19 May 2010. That allegation is:
The Shares (as defined in paragraph 2 of the statement of claim) were transferred to the defendant by the plaintiff at the direction of HGH in partial satisfaction of the debt.
Looking at the pleading alone, the fact that a transfer of assets was in partial satisfaction of a debt between related parties does disclose a reasonable ground of defence. The issue here is not in the pleading but in the particulars.
In relation to par 6(b), the defendant filed particulars in response to the plaintiff's request. They are dated 3 December 2010.
In summary terms, the particulars provide that the direction was implied, and that the inference that the plaintiff transferred to the shares to the defendant in partial satisfaction of the debt of HGH to the defendant arises by reason of six facts. They are as follows:
(a)Stan Holmes, the third party, being a director of HGH and the plaintiff;
(b)an email from Mr Holmes' to Dorota Kieronska of the defendant dated 17 November 2003 attaching the share sale agreement;
(c)HGH owing a debt to the defendant.
(d)that the defendant did not make any payments to the plaintiff in respect of the shares;
(e)that the plaintiff did not request payment from the defendant in respect of the shares; and
(f)that the defendant considered the transfer of the shares to be in reduction of the debt as was recorded in a chronology of the defendant's dealings with HGH prepared in or about May 2004 by one Barry Padman who is described in the particulars as the defendant's then in‑house counsel.
The document referred to in par (f) above is not before me. The only document that is before me is the email in par (b). The email is annexed to Mr Buckley's affidavit of 11 January. The email provides:
Attached is Share Sale Agreement – this limits downside but still makes it a commercial transaction (to comply with mandate). Give me a call when you've had a look. Regards, SDH.
There is nothing in the email or in the share sale agreement attached to the email which links the share sale to the repayment of the debt.
As a matter of principle, when considering whether or not a defence discloses a reasonable cause of action where the issue is one of inference, it seems to me I should proceed on the basis that the court will find as a matter of fact each of the facts set out in the particulars. That is consistent with the general thrust of the decision in Kimberley Downs. Having done that, I should then consider whether or not those facts, being the six facts I have set out above, form a basis from which the inference could be drawn.
It is not sufficient for me to strike out the pleading if there is some basis for the inference to be drawn. In this regard, the application sits on the borderline between an application for summary judgment and an application to strike out a pleading and, consistent with the authorities on summary judgments, I ought to allow any factual disputes to proceed through to trial.
However, in this case, it seems to me that even if all those facts are accepted to be true, there is nothing linking the share sale agreement to the underlying or the said-to-be-related debt. The only possible linkage is the defendant's internal memorandum. The fact that the defendant, in a more or less contemporaneous document, recorded the payment as partial satisfaction does not, in my view, give rise to any basis for an inference that there was an implied direction.
On that basis, the particulars do not establish any basis for a Judge to find the inference sought to be pleaded.
I turn now to the statement of claim in the third party proceedings. The relevant paragraph under challenge in the third party statement of claim dated 22 October 2010 is par 5. That paragraph is as follows:
On or about 20 November 2003, the Shares (as defined in paragraph 2 of the Statement of Claim) were transferred by the Plaintiff to the Defendant in partial satisfaction of the Debt.
Again, as with the plaintiff, the third party sought further and better particulars. These were provided by the defendant by a document dated 3 December 2010. The particulars relied on are exactly the same particulars as the defendant relied on in response to the challenge to par 6(b) of the defence.
Again for the reasons I have set out in relation to par 6(b) of the defence, I do not consider that the statement of claim in the third party proceedings discloses a reasonable cause of action. Specifically, even if the Judge does accept the six facts, there is no basis for a Judge to draw the inference sought to be drawn, namely, that the shares were transferred by the plaintiff to the defendant in partial satisfaction of the debt.
That leaves the question of whether or not the defendant ought to have an opportunity to provide supplementary particulars. It seems to me that the particulars provided, both of par 6(b) of the defence and par 5 of the statement of claim in the third party proceedings, are factual bases which with other particularised facts may form the basis of the inference pleaded. They are the context in which the share sale agreement has occurred.
In the course of argument, counsel for the defendant expressed doubts as to being able to provide any further or better particulars of evidence that may be led at trial to support the partial satisfaction argument. However, it seems to me that in the interests of justice, I ought to give the defendant the opportunity to provide additional particulars. The particulars may be in addition to the facts which have currently been pleaded, because, as I have found, it may be that those facts with other facts form a basis for a Judge to find the inference contended.
It seems to me that the appropriate way to resolve the application is not at this stage to strike out the allegation. I will allow the defendant a short opportunity to provide supplementary particulars, and then review them in the light of the principles that I have set out in this decision.
I will hear from counsel in relation to final orders.