IPA Holdings Pty Ltd v Onetemp Pty Ltd
[2009] SASC 153
•2 June 2009
SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
IPA HOLDINGS PTY LTD v ONETEMP PTY LTD & ANOR
[2009] SASC 153
Reasons of Judge Lunn a Master of the Supreme Court
2 June 2009
PROCEDURE
Pleadings - application to strike out statement of claim under 6R 104 - whether statement of conclusion about facts to be struck out as not being a sufficient pleading of material facts - whether 6R 104 enables embarrassing pleading to be struck out - whether pleading to be struck out for lack of particularity before defence filed - whether statement of claim gave fair notice of plaintiff's case - whether breaches of rules prejudiced the proper conduct of the action.
IPA HOLDINGS PTY LTD v ONETEMP PTY LTD & ANOR
[2009] SASC 153Reasons on defendants’ application to strike out the statement of claim.
JUDGE LUNN:
Background.
Clive Ragless (“Mr Ragless”) and Daron Carnie, the second defendant (“Mr Carnie”), are the directors of the plaintiff. Mr Carnie is the sole director of the first defendant, Onetemp Pty Ltd (“Onetemp”). Prior to 1982 Mr Ragless and Mr Carnie had carried on business in partnership. In 1992 the plaintiff took over that partnership business and conducted it as the trustee of the Industrial Pyrometers Aust Pty Ltd Unit Trust. The trust deed provided that the Trust was to vest on 1 June 2003 whereupon the plaintiff would realise its assets (“the sale obligation”) and distribute them to the unit holders, which have always been Onetemp and IPA Manufacturing Pty Ltd (“IPA Manufacturing”), a company controlled by Mr Ragless. The plaintiff pleads that an agreement was made in 1991 (“the 1991 agreement”) between the interested parties that the trust business would be divided into a manufacturing operation, which would be conducted by IPA Manufacturing under licence from the plaintiff, and a sales operation, which would be conducted by Onetemp on licence from the plaintiff. The plaintiff pleads that there were the following implied terms in that 1991 agreement.
15Insofar as the 1991 agreement was implied, the implied terms were that:
15.1That the licenses (sic) would not continue in time beyond the vesting date of the IPA Trust.
15.2That the sale obligation would be carried out by Holdings upon the earlier of:
15.2.1 the vesting of the IPA trust or
15.2.2 the termination of the licences under the 1991 agreement.
15.3Mr Carnie, Onetemp, Mr Ragless and IPA Manufacturing would use their best endeavours upon the termination of the licenses (sic) to enable Holdings to perform the sale obligation.
15.4The sale obligation would be undertaken by Holdings selling the recombined sales and manufacturing operations of the business.
The said terms are to be implied because:
15.5They are so obvious that they go without saying.
15.6The are necessary to give business efficacy to the 1991 agreement.
15.7The are reasonable.
15.8They are capable of clear expression.
On 25 June 1999 the interested parties entered into a deed (“the 1999 deed”) which provided, inter alia, that the arrangements under the 1991 agreement would continue, inter alia, until the parties gave notice of termination. On 31 January 2003 Onetemp gave such notice of termination. The plaintiff pleads that in breach of the implied terms Onetemp and Carnie have failed to use their best endeavours to enable the plaintiff to perform the sale obligation under the trust deed. It is also pleaded that Mr Carnie is in breach of fiduciary duties he owed to the plaintiff in causing Onetemp to retain the assets of the plaintiff which were the subject of the licence by refusing to allow the plaintiff to perform the sale obligation and that Onetemp is liable to the plaintiff for knowingly having participated in those breaches of fiduciary duties by Mr Carnie. Various relief is sought by the plaintiff against each defendant which is not necessary to detail.
The proceedings.
In action 1392/06 in this Court by Mr Ragless against the present plaintiff Mr Ragless was given leave to proceed in the name of the plaintiff to bring claims against Onetemp and Mr Carnie. This action has been brought pursuant to that leave. No defence has yet been filed.
Application under 6R 104.
On 6 April 2009 the defendant issued an application seeking to strike out the whole or parts of the statement of claim. The only jurisdiction invoked by the application was 6R 104 which provides:
104Court’s power to strike out pleading
The Court may strike out a pleading in whole or part if the pleading –
(a)does not comply with these rules; and
(b)is an abuse of the process of the Court or prejudices the proper conduct of the action.
Example –
If a statement of claim discloses no reasonable cause of action, or a defence discloses no reasonable ground of defence, the Court may strike it out as an abuse of the process of the Court.
In order to obtain a striking out under 6R 104 the defendant must establish both that the pleading does not comply with “these rules” and also it is either an abuse of the process of the Court or it prejudices the proper conduct of the action: Holcon Australia Pty Ltd v Corporation of the Town of Walkerville, White J, 13 December 2007, Judgment No [2007] SASC 437, unreported. “These rules” in subr 104(a) mean the Supreme Court Civil Rules 2006.
The defendants’ counsel relied upon various alleged breaches of the rules.
Statement of the material facts
6R 99(1)(c) provides:
(1) A statement of claim –
…..
(c)must contain a short statement of the material facts on which each cause of action is based;
…..
Counsel for the defendants contended that a bare or bald conclusion set out in the pleading could not be a statement of a material fact for the purposes of subr (1)(c). On this basis he sought to strike out the following passages from the statement of claim:
Onetemp:
22.1Has continued to use and have the benefit of the assets which are the subject of the license granted by Holdings to it under the 1999 Deed.
22.2Has failed and/or refused to use its best endeavours to enable Holdings to perform the sale obligation.
22.3Has failed and/or refused to use its best endeavours to enable Holdings to sell the recombined sales and manufacturing operations of the business.
…..
Mr Carnie:
26.1has caused Onetemp to retain the use and benefit of the assets of Holdings which were the subject of a licence under the 1999 Deed;
26.2has cause Onetemp to refuse to use its best endeavours to enable Holdings to perform the sale obligation;
26.3has refused to cause Holdings to perform the sale obligation;
26.4has refused to cause Holdings to perform the sale obligation by selling the recombined sales and manufacturing operations of the business;
26.5has had a conflict of interest and duty between his interests in Onetemp and his duty to Holdings;
26.6has preferred his interests over the interests of Holdings and the IPA Trust.
…..
27.6Onetemp has refused to permit the sales operations of the business to be recombined with the manufacturing operations of the business to permit sale of the business by Holdings;
27.7Onetemp is the alter ego of Mr Carnie in respect of the interests of Mr Carnie in his dealings with the business, Holdings, Mr Ragless and IPA Manufacturing.
(In some instances various of these subparagraphs are repeated in a different part of the claim, but I have not quoted them a second time). The defendants argue that each of these subparagraphs is a conclusion from other basic facts, and it is those other more basic facts which must be pleaded under subr (1)(c).
The following authorities were cited in support of this proposition:
·Sackville J in Seven Network Limited v News Limited, 6 May 2003, (2003) FCA 388 at [21-22]:
‘The material facts are all those facts necessary for the purpose of formulating a complete cause of action. ….. It is not sufficient that the statement of claim simply express a conclusion drawn from facts which are not stated …..; though in some circumstances to plead a conclusion may be to plead a material fact. ….. Not only must all material facts be pleaded, but they must be pleaded with a sufficient degree of specificity, having regard to the general subject-matter, to convey to the opposite party the case that party has to meet. …..’
As this passage indicates, a pleading must allege the material facts that establish each element of the cause of action. Accordingly, in the context of a claim under Part IV of the TP Act, it is not enough to assert conclusions drawn from facts not pleaded in the statement of claim. A mere assertion, for example, that an agreement contained a provision that had the purpose or effect of substantially lessening competition is not a proper pleading.
·Adam J in Rubenstein v Truth and Sportsmen Ltd [1960] VR 473 at 476 where it was stated:
….. To deal in further detail only with the allegation that material facts are not stated, it is my opinion that paragraph 6, containing as it does merely the bald assertion that the defendant Marks directed or authorised the other two defendants to print and publish the alleged libels, offends against the fundamental rule that every pleading shall contain, albeit in a summary form, a statement of the material facts, …..
·Cox J in Rupcic v Baulderstone Pty Ltd (1987) 46 SASR 99. That decision prohibits pleading of what are essentially conclusions of law, such as that the defendant was negligent. Here the conclusions complained of are essentially of fact or mixed fact and law, but not primarily of law.
·Two decisions of mine in Lutze v Westpac [1988] 144 LSJS 200 at 202-3 and Akerman v John Fairfax & Sons Ltd (1992) 163 LSJS 267 at 267-8. These do not deal with the pleading of conclusions of fact but rather that all the necessary facts must be pleaded.
While acknowledging that these authorities are to the effect that it is the facts from which any intermediate or ultimate conclusions of fact are to be drawn are the facts which should be pleaded, it may be in the context of the 2006 Rules that this is not an absolute requirement and there may be an exception in the interests of justice in particular cases. As I intend to refuse the application on other grounds I need not pursue the point.
It is also necessary that the defendants establish that this non-compliance with subr 99(1)(c) in respect of the passages referred to above prejudice the proper conduct of the action. (There was no suggestion that they constituted an abuse of process). On the affidavit evidence I find that neither individually nor collectively do these non-compliances with R 99(1)(c), as set out above, prejudice the proper conduct of the action. Various documents put forward by or on behalf of the defendants in the earlier action to obtain the leave to proceed show that the defendants’ case is that the sale obligation of the plaintiff is no longer operative and they deny that the terms set out in paragraph 15 are to be implied. This was asserted before me by the plaintiff’s counsel and was not contradicted by the defendants’ counsel. If that is the case of the defendants, it seems highly likely that Onetemp has continued to use the assets which are subject of the licence and it has done nothing to implement the sale obligation. Hence the matters pleaded in paragraphs 26 and 27, as quoted above, are likely to be of little significance in the trial of the action and it is of no apparent utility to make the plaintiff plead them in greater detail. Also from what was put forward by Mr Ragless in the previous action the defendants must have a good understanding of the case which is being mounted by the plaintiff on these topics. Furthermore, if at the trial the defendants are prejudiced by the plaintiff seeking to lead evidence of facts anterior to the conclusions pleaded, the trial Judge under 6R 103 could be expected to exclude such evidence being adduced by the plaintiff.
Embarrassing pleading.
The defendants also submitted that the pleading of the conclusions of fact, as set out above, should be struck out as an embarrassing plea: Philipps v Philipps (1878) 4 QBD 127. However, there is no rule in the 2006 Rules which expressly prohibits an embarrassing pleading. Bleby J referred to the point in Riverland Fruit Co-operative Ltd v 007 953 380 Pty Ltd, 17 July 2008, Judgment No [2008] SASC 258, where he said:
Under the 1987 Rules the pleading proposed would be struck out as disclosing no reasonable cause of action or as having a tendency to cause embarrassment in the proceedings. There is no direct counterpart in the 2006 Rules. However, R 104(b) of the 2006 Rules enables the Court to strike out a pleading if it is “an abuse of the process of the Court or prejudices the proper conduct of the action”. In my opinion, it is implicit in that rule that a pleading could be struck out for the same reasons, as mentioned above, especially if the statement of claim does not comply with the requirements of R 99, namely that it must state the basis of each cause of action and must contain a short statement of the material facts on which the cause of action is based. (Footnotes omitted).
I interpret this passage to mean that embarrassment can be encompassed within prejudice to the proper conduct of the action for the purposes of 6R 104, but it does not go as far as saying that embarrassment is sufficient for striking out under 6R 104 where no other non-compliance with the Rules is established. This interpretation is consistent with Holcon’s case as quoted above. Accordingly, the fact that any of these pleas may be embarrassing is not without related non-compliance with the Rules sufficient to enable a striking out under 6R 104. The applications to strike out for non-compliance with 6R 99(1)(c) are refused.
Failure to disclose a cause of action.
The defendants’ contention on this ground of striking out were dependent upon them obtaining the strikings out sought under 6R 99(1)(c). No submission was put that any essential part of a cause of action in law was not contained in the statement of claim if the passages attacked under 6R 99(1)(c) remained. No authorities were cited as to the essential elements of the pleaded causes of action. However, if an essential element was not pleaded, the relevant part in the statement of claim would have been struck out under 6R 104 as by virtue of the Example to that Rule failure to disclose a reasonable cause of action is an instance of abuse of process.
Lack of proper particularity.
6R 98(2)(d) provides:
(2)A pleading –
…..
(d)must plead such facts as give fair notice of the party’s case at trial.
This is to be read in conjunction with the following parts of 6R 102:
102 Power to order further particulars of party’s case
(1)The Court may, on its own initiative or on application, order a party to file further particulars of its case.
…..
(3)The Court will only make an order for further particulars if satisfied that –
(a)the pleadings do not give fair notice of the party’s case; and
(b)the order is necessary to avoid substantial prejudice to the party in whose favour the order is to be made.
…..
(5)No pleading is defective for want of particularity unless the missing particulars would be ordered under this rule.
Although 6R 98(2)(d) is not expressed in terms of particulars, it is clear that the consequences of its breach are limited by 6R 102(5).
The defendants complain of numerous instances of lack of proper particularity in the statement of claim. In Wunda Joinery Pty Ltd v Wunda Projects Australia Pty Ltd (No 2), 21 July 2008, Judgment No [2008] SASC 199, I said on the subject of whether particulars should be ordered before defence:
….. In the Supreme Court civil Rules 2006 there is no direct equivalent of R 46.16 of the repealed Supreme Court Rules 1987, or rules in other jurisdictions, which precluded an order for particulars being made before the filing of a defence, except where they were necessary or desirable to enable the defendant to plead or would be ordered for some other special reason. There is no decided authority on the entitlement to particulars before defence under 6R 102.
The new Rules on pleadings are generally to be interpreted to produce a similar effect to the repealed Rules on the topic, except where a change was clearly intended: Holcon’s case above. Thus I consider that 6R 102(3)(b) (quoted above), where it refers to “to avoid substantial prejudice to the party in whose favour the order is to be made” should be interpreted in this context in a similar fashion to the authorities under the repealed 87R 46.16(1). This means that the defendants mush either show that they would incur “substantial prejudice” in having to plead to the statement of claim in its unparticularised form or that there is some other special reason why they should have the particulars at this stage. In its general discretion under 6R 102 the Court should not make an order for particulars until the pleadings are complete merely because the defendants may be able to show “substantial prejudice” in the later conduct of their case. Those matters are better considered after the close of pleadings when the completed pleadings have disclosed the matters which need to be resolved by a trial. …..
For similar reasons to those set out above on why there was no prejudice to the conduct of the action from any breaches of 6R 99(1)(c) I do not consider that any particulars are needed to enable the defendants to plead to the statement of claim. They have established neither substantial prejudice under 6R 102(3)(b) nor prejudice of the proper conduct of the action under 6R 104. Part of the rationale to the changes in the Rules on making orders for particulars contained in 6R 102, and its predecessor 87R 46A, was to avoid the needless expense and delays which had been previously occasioned by interlocutory arguments about particulars on topics which did not contribute to the expeditious and economical conduct of the trial. If any application is made by the defendants under 6R 102, it is better dealt with after the completion of the pleadings when the importance of the topic can be better assessed in the light of the whole of the pleadings. The application for striking out based on any breach of 6R 98(2)(d) is refused.
Rolled up pleas.
6R 99(2) provides:
(2)If the plaintiff relies on separate causes of action, the statement of material facts must differentiate between –
(a)facts that are common to both or all causes of action; and
(b)facts that are relevant only to a particular cause of action.
The defendants’ counsel complained that paragraphs 26 and 27 breached this rule in that they did not differentiate between breaches of the two fiduciary duties which it was alleged Mr Carnie owed to the plaintiff and to Onetemp. While this may technically be correct the defendants did not allege any particular prejudice to them resulting from it. I do not find that any prejudice has resulted from it. Accordingly, 6R 104(b) has not been satisfied for any breach of 6R 99(2). Thus paragraphs 26 and 27 are not to be struck out.
Fair notice of the plaintiff’s case.
The defendants’ counsel complained that the statement of claim did not give the defendants fair notice of the plaintiff’s case, and thus it breached a fundamental principle and purpose of pleading: Williams v Australian Telecommunications Commission (1988) 52 SASR 215 at 215-7 and 222. Under the present pleading rules whether a party has been given proper notice of the case which its opponent is to make at trial is generally to be assessed at trial by the trial Judge. This is subject to it being shown that the party will be substantially prejudiced by non-disclosure in respect of some necessary interlocutory process: H Stanke & Sons Pty Ltd v O’Meara [2007] 98 SASR 450 at [85]. Under 6R 103 the trial Judge can take into account other matters such as disclosure of documents, experts’ reports and the like in determining whether a party has been prejudiced so as to exclude evidence from another party which is outside that party’s pleadings. Whether there has been proper disclosure is not usually an exercise which can be usefully undertaken on an interlocutory application at an early stage of an action. I am satisfied that the defendants have not shown that they would suffer any prejudice at this stage of the action if it proceeds on the present statement of claim.
Damages.
The plaintiff concedes that it needs to amend its statement of claim to plead what damage it has suffered. The defendants do not oppose the plaintiff having leave to amend for this purpose.
I have today made the following orders:
1Permission to the plaintiff to amend its statement of claim within 14 days by pleading its loss and damage.
2FDN 3 dismissed.
3Costs of FDN 3 to be the plaintiff’s costs.
4FDN 3 fit for counsel.
5Time for the defendants to file their defence extended until 14 days after service of the amended statement of claim.
6Further Status Hearing set for 8 July 2009 at 11.50 am.
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