JB Asset Management v LBA Capital

[2023] VSC 183

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST

S ECI 2019 03875 

JB ASSET MANAGEMENT (and others according to the schedule attached)	Plaintiffs
v
LBA CAPITAL PTY LTD (ACN 628 451 267) (and others according to the schedule attached)	Defendants

---

JUDGE:	M Osborne J
WHERE HELD:	Melbourne
DATE OF HEARING:	17 March 2023
DATE OF JUDGMENT:	14 April 2023
CASE MAY BE CITED AS:	JB Asset Management & Anor v LBA Capital & Ors
MEDIUM NEUTRAL CITATION:	[2023] VSC 183

---

PRACTICE AND PROCEDURE – Application for striking out of pleading pursuant to Order 23.02 of the Supreme Court (General Civil Procedure) Rules 2015 – Application for summary dismissal pursuant to r 23.01 of the Rules and ss 62-64 of the Civil Procedure Act 2010 (Vic) – Coherency of claims – Adequacy of pleading of loss and damage – Adequacy of pleading of attribution of knowledge of director – Adequacy of pleading of attribution of knowledge of director of company to a subsidiary company of which he is not a director – Downer Connect Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2008] VSC 77 – Teddo Corporation Pty Ltd v Owners Corporation No 1 & Ors [2022] VSC 667.

CORPORATIONS – Guiding mind and will of company – Attribution of knowledge of director in circumstances where transaction proposed to be entered into is alleged to be illegal – Belmont Finance Corporation v Williams Furniture Ltd (No 2) [1980] 1 All ER 393 – LMI Australia Pty Ltd v Balderston Hornibrook (2002) 18 BCL 57.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Ms C Harris KC Mr T P Warner	Allens
For the Tenth and Eleventh Defendants	Mr P Ehrlich KC Mr N Cozens Mr R Kornhauser	Madgwicks

HIS HONOUR:

Introduction

1. The tenth and eleventh defendants, Next Stage Living Group Pty Ltd (‘NSL Group’) and Next Stage Living Moonee Ponds Pty Ltd (‘NSL MP’, collectively the ‘NSL Parties’), apply by summons for orders pursuant to r 23.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘Rules’) and/or s 62 of the Civil Procedure Act 2010 (Vic) (‘CPA’) (‘the Strike Out and Dismissal Summons’) that the claims made by the plaintiffs, JB Asset Management (‘JBA’) and KB Kookmin Bank (‘Kookmin Bank’ and collectively the ‘Plaintiffs’) against the NSL Parties in the third further amended statement of claim filed pursuant to the order of Riordan J made 13 October 2022 (‘Third FASOC’) be struck out, alternatively, that the claims be summarily dismissed. The summons also seeks an order for the determination of a separate question although the hearing of that application has been deferred.

1. At the return of the summons on 3 February 2023, the Plaintiffs advised that they wished to make certain amendments to the Third FASOC in order to respond to aspects of the criticisms made by the NSL Parties.  As a result, I made orders for the filing and service of a proposed further amended statement of claim (‘Fourth FASOC’) and for the NSL Parties to advise whether they consented to leave to amend.  The orders contemplated that any opposed application for amendment would be determined at the next return along with the Strike Out and Dismissal Summons.

1. Importantly, discovery orders previously made on 25 November 2022 requiring the NSL Parties to make discovery remained in place and although foreshadowed, no order was made at that stage striking out the Third FASOC so that the issues in dispute for the purposes of discovery could be defined by reference to the existing pleadings.  In addition, I informed the parties that I expected the NSL Parties to provide the Plaintiffs with whatever documents reasonably requested and that a broad view was likely to be taken as to what was reasonable save where it could be said that the production requested was oppressive. 

1. Discovery was completed without controversy.  The NSL Parties oppose leave being granted to amend in the terms of the Fourth FASOC and press the Strike Out and Dismissal Summons.

1. The Third FASOC and the Fourth FASOC are both lengthy documents and include claims by the Plaintiffs against 11 defendants.  However, as a result of settlements entered into by the Plaintiffs and the stay of the claim against the ninth defendant, Raffaele Aiello, as a result of his bankruptcy, the only claims that are now pressed are those against the eighth defendant, Mario Charisiou (‘Mario’) and against the NSL Parties.  Despite the settlement, all parties remain listed as defendants, ostensibly to enable certain apportionment defences to be maintained, and because the earlier pleaded allegations nevertheless remain relevant to the claims against Mario, and the NSL Parties.  Aside from earlier paragraphs incorporated expressly or by inference, the discrete claims against the NSL Parties comprise only seven and eight paragraphs in the Third and Fourth FASOC respectively.

Procedural History and Background Facts

1. Before examining the pleaded claims in more detail, it is useful to set out some of the procedural history and refer to some of the factual underpinnings of the resolved claims and the allegations of material fact against those defendants in a way which facilitates understanding of the claims against the NSL Parties. 

1. The Plaintiffs are companies registered in Korea and are licensed by the Korean Government to raise funds in Korea and to lend those funds to third parties. 

1. Between approximately 21 March 2019 and 14 June 2019, the second plaintiff, Kookmin Bank, entered into eight separate commercial loan agreements (‘Commercial Loan Agreements’) with the first defendant, LBA Capital Pty Ltd (‘LBA’).  The fifth defendant, James Charisiou, was the sole director of LBA. 

1. The Commercial Loan Agreements provided for the advance of funds to LBA for the purpose of being applied towards the acquisition of various specified properties with the advances being subject to receipt by Kookmin Bank of certain documentation relating to the identified properties. 

1. The Plaintiffs commenced the proceeding against the first to ninth defendants on 27 August 2019.

1. The Plaintiffs allege that the supporting documentation provided by LBA were forgeries (‘Forgery Conduct’), that the funds so advanced (‘Advanced Funds’) were applied otherwise than towards the acquisition of the identified properties (‘Failure Conduct’) and instead (‘Unauthorised Conduct’) were applied towards the acquisition of other real properties (‘Dissipated Funds’).[1] 

   [1]These defined terms are used in the Third and Fourth FASOC.

1. The Advanced Funds are alleged to have been paid by the Plaintiffs into an escrow account by eight separate payments from 22 March 2019 to 14 June 2019 and then drawn down from that account, presumably by LBA[2] by five separate drawn downs, twice on 5 April 2019, twice on 27 May 2019, with a final draw down on 5 July 2019.

   [2]Although not specifically pleaded.

1. The Plaintiffs sought damages, but no proprietary remedies, against the original nine defendants for loss and damage sustained as a result of the Forgery Conduct, the Failure Conduct and the Unauthorised Conduct (collectively the ‘Unlawful Conduct’).

1. The Plaintiffs allege that at all material times James Charisiou was aware:

(a)   of the Unlawful Conduct;

(b)  of the terms of each of the Commercial Loan Agreements;

(c)   that the Plaintiffs expected the terms of the Commercial Loan Agreements to be complied with, including that they would be provided with genuine documents to satisfy the conditions precedent thereunder; and

(d)  that the Plaintiffs would not have made or procured the advancement of the Advanced Funds purportedly pursuant to the Commercial Loan Agreements if they had knowledge of the Unlawful Conduct.[3]

[3]Paragraph 18 of the Third and Fourth FASOC.

1. The Plaintiffs define this awareness of James Charisiou as the ‘James Charisiou Knowledge’.[4]  

   [4]Paragraph 18 of the Third and Fourth FASOC.

1. They also allege relevantly that James Charisiou was the sole director of LBA at all material times and a director of NSL Group from 13 June 2019 to 2 September 2019.  NSL MP is alleged to be a wholly-owned subsidiary of NSL Group at all material times.

1. Relevantly, $2,970,000 of the Dissipated Funds were paid to Madgwick Lawyers’ trust account on or around 21 June 2019 allegedly ‘for the ultimate benefit of NSL MP’. 

1. On about 6 May 2022, the Plaintiffs entered into a settlement with the first to fifth defendants which relevantly included LBA and James Charisiou.

1. By orders made 13 September 2022, the Court made orders staying the claims against the first to fifth defendants. The recitals to the orders refer to the settlement and append a redacted copy of the settlement deed (‘Settlement Deed’) to the order and otherwise provide that the first to fifth defendants are to remain as parties to the proceeding as nominal defendants for the purposes of any apportionment of the Plaintiffs’ claims against the other defendants pursuant to any applicable proportionate liability regime. 

1. The orders provided for the Plaintiffs being given leave to file and serve a second further amended statement of claim in a form appended to the order.

1. Subsequently, by orders made 13 October 2022, NSL Group and NSL MP were joined to the proceeding as the tenth and eleventh defendants and orders were made for the filing and service of the Third FASOC.

1. The successful application for joinder was supported by an affidavit of  Daniel John Ludington, the solicitor for the Plaintiffs, made 8 September 2022 (‘Joinder Affidavit’), which deposes to facts relevant to the proposed joinder of NSL Group and NSL MP.

1. The sequence of events as it appears from the Joinder Affidavit and various court documents include the following:

(a)   On 26 October 2018, an information memorandum was produced with the title ‘Next Stage Living Moonee Ponds 11-45 Derby Street, Moonee Ponds, which outlined an opportunity to acquire vacant development land and an existing retirement village in Moonee Ponds, Victoria for approximately $30 million.  The land and business are known as Ardmillan Place. 

(b)  On 13 June 2019, forms were lodged with the Australian Securities and Investment Commission (‘ASIC’) to reflect the appointment of James Charisiou as a director of NSL Group and the issuance of shares in NSL Group to LBA with the effective date of the appointment and share issue indicated as 26 April 2019.  Zella Advisory Pty Ltd was listed as the person to be contacted by ASIC if there was a query about the form and the lodgement details section of the form.  The forms identified Daniel Milentijevic (‘Mr Milentijevic’), a director of NSL Group, in the signature section with a signed date of 13 June 2019.

(c)   Between 17 June 2019 and 18 June 2019, Mario, James Charisiou and Anthony Cuzzupi (‘Mr Cuzzupi’), the general manager of Jasmine Development Group Pty Ltd, exchanged emails as follows:

(i)     On 17 June 2019, Mr Cuzzupi emailed Mario and James Charisiou a copy of the ‘Trivett Constitution’.  Trivett appears to be a reference to Trivett Property Partners Pty Ltd (‘Trivett’) which was a majority shareholder of NSL Group in the period between 8 November 2018 and 11 November 2019.

(ii)  On 17 June 2019, Mario responded saying:

‘[u]ntil the share transfers occur over to LBA Capital and James placed as director, there can’t be any funds transferred.  I think you need to speak to Raff and Dimitri this.  I will be in around 11 am to see Raff, we can discuss then.

(iii)             On 18 June 2019 at 11:07am, Mr Cuzzupi responded, copying the ninth defendant, Raffaele Aiello, with an email which attached an ‘extract confirming appoint (sic) of James as director an allocation of shares’.

(iv)             On 18 June 2019 at 2:03pm, Mr Cuzzupi responded again, this time providing a copy of the Madgwicks Lawyers trust account details for payment of a ‘deposit which will be due to paid (sic) to Ardmillan when the relevant documentation has been entered into’.

(d)  On 20 June 2019, Mr Cuzzupi emailed Mario, James Charisiou, Joshua Balsim and Tony Balsim, copied to Raffaele Aiello, providing Mario and James Charisiou with payment details for the holding deposit for Ardmillan Place.

(e)   By email dated 21 June 2019, Mario responded as follows:

[c]an you advise Madgwicks to contact our solicitor Nick Galatas from GPZ on a couple of things.  The funds to be transferred are lent to the group hence a loan agreement needs to be in place to the purchasing entity with guarantees in place.  If this can’t occur fast enough I suggest have Madgwicks email Nick ASAP, that the funds will remain in their trust account until we have our loan facility/agreement in place, when this is done, the funds can be issued out to the Vendor (I believe the funds are only in trust to show the Vendor that we have the funds and to go to contract, which should give us time to produce the loan agreement).

(f)    On 21 June 2019, Madgwicks Lawyers emailed Nick Galatas of GPZ Legal, copied to Tony Balsim and Mario, requesting that Mr Galatas arrange the transfer of funds to the trust account of Madgwicks Lawyers.  The subject of the email was ‘Ardmillan Place holding deposit’.  The stated purpose of the transfer was to provide proof for the vendor that sufficient funds were held in Madgwicks Lawyers’ trust account in anticipation of payment of a deposit. 

(g)  On 21 June 2019, Mario forwarded the email described above at sub-paragraph (f) to James Charisiou saying ‘can you make the payment today?’

(h)  On 21 June 2019, LBA made a payment of $2,970,000 with the description ‘Ardmillan  House’ which was received by Madgwicks Lawyers into its trust account.  The Madgwicks Lawyers trust account receipt identifies the related file for the deposit as ‘SJH 038064 Next Stage Living Pty Ltd acquisition 11-45 Derby Street, Moonee Ponds’.

(i)     On 2 August 2019, contracts of sale were executed in respect of a contract for the sale of the land at 11-45 Derby Street, Moonee Ponds between Ardmillan Place Nominees Pty Ltd as vendor and NSL MP as purchaser, along with an associated assets sale agreement.  The price set out in the land sale contract is $26,050,000 payable as to a deposit of $2,605,000; a further payment due at settlement of $1,445,000 with the balance of $22,000,000 payable in 24 months’ time from settlement and secured by a mortgage over the land.  The purchaser’s obligations were secured by a guarantee provided by Mr Milentijevic, Joshua Balsim, Deca Design Pty Ltd, Trivett and NSL Group. 

(j)     On 2 August 2019, Madgwicks Lawyers transferred the $2,970,000 to Ardmillan Place Nominees.

(k)  On 16 August 2019, representatives of the Plaintiffs apparently confronted James Charisiou about the alleged fraud involving the use of funds lent pursuant to the loan agreements between the Plaintiffs and LBA.

(l)     On 18 August 2019 at 7:44pm, Daniel Milentijevic sent an email to Mario, copied to Tony Balsim, stating:

As discussed with Tony please find attached a drawdown notice for Ardmillan settlement.  Account details for Madgwicks trust account are on the attached per the details below.  Let me know if you need anything else.

The drawdown notice as addressed to LBA is dated 16 August 2019 is in the amount of $17,000,000 with the description ‘settlement funds for Ardmillan Place Moonee Ponds.’

(m)             On 19 August 2019, at 10:53am, Mario replied saying ‘can you date it last week please?’ to which Mr Milentijevic replied attaching a draw down notice dated ‘last Friday’, which was 16 August 2019.  The draw down notice is addressed to LBA and called for $17,000,000 to be deposited into the Madgwicks Lawyers trust account by 18 August 2019 and included the description ‘settlement funds for Ardmillan Place Moonee Ponds.’.

(n)  Separately, on 19 August 2019,  at 10:07am, Mario sent an email to Joshua Balsim attaching a facility agreement between LBA as lender, Trivett as borrower and Asya Balsim and Raffaele Aiello (as guarantors) with a facility limit of $18,500,000 (‘Trivett Facility Agreement’) and requested that ‘Josh’ have the document ‘signed and dated back two weeks ago’ and then sent back to Mario that morning.

(o)   Joshua Balsim replied at 10:38am with a copy of the facility agreement executed by Joshua Balsim (only) on behalf of Trivett and dated 9 August 2019. 

(p)  On 23 August 2019 ex parte freezing orders were made against inter alia LBA freezing its assets in Australia up to the amount of $150 million and an associated asset disclosure order was made requiring it to disclose all its assets. 

(q)  By affidavit sworn 16 September 20219, James Charisiou swore a disclosure affidavit on LBA’s behalf (‘LBA Disclosure Affidavit’).  The Disclosure Affidavit made no reference to the $2,970,000 payment or anything connected with it including the Trivett Facility Agreement.

(r)    On 2 September 2019, a form was lodged with ASIC to reflect the removal of James Charisiou as a director of NSL Group and LBA as a shareholder of NSL with the effective date of removal said to be 27 April 2019.  The contact details and purported signatory were the same as those set out in Mr Charisiou’s appointment.

(s)    On 7 October 2019, Trivett issued a drawdown notice to LBA seeking the drawdown of $14,000,000 from LBA pursuant to the Trivett Facility Agreement.

(t)    On 11 October 2019, GPZ Legal, solicitors for LBA, wrote to Trivett advising that the funds that LBA represented as being available under the Trivett Agreement were no longer available and as such LBA could no longer proceed with the Trivett Facility Agreement.  GPZ Legal, on LBA’s behalf, requested the return of the $2,970,000 transferred on 21 June 2019 plus interest.

(u)  On 14 October 2019, Trivett served LBA with a notice of default under the Trivett Facility Agreement.

(v)  On 18 November 2019, Madgwicks Lawyers, solicitors for Trivett,  sent a letter to GPZ Legal refusing to return the $2,970,000 including on the basis that it was not repayable under the terms of the Trivett Facility Agreement until the repayment date of 36 months from the initial drawdown date, and advising that Trivett would not return the moneys on that date in any event, as it had an entitlement to damages for breach of the Trivett Facility Agreement because of LBA’s inability to advance further funds which exceeded the $2,970,000 advance.

1. The Plaintiffs’ solicitors subsequently obtained a copy of the Trivett Facility Agreement executed by all parties which bears the date 19 June 2019.  The parties to the Trivett Facility Agreement are LBA as lender, Trivett as borrower and the obligations of the borrower are guaranteed by Asya Balsim[5] and Raffalele Aiello, who have also executed the document on Trivett’s behalf as its directors.  The loan purpose is described as ’for working capital for the borrower’ with advances made on the provision of drawdown notices with repayment required on the repayment date which is 36 months from the date of the Initial Drawdown Date which is defined as ‘no later than five business days after the later of the date of the agreement and the date of satisfaction of identified conditions precedent. 

   [5]Joshua Balsim had signed the earlier version on Trivett’s behalf; see [23(o)] above.

1. As noted above, in May 2022, the Plaintiffs entered into the Settlement Deed with LBA and James Charisiou, among others.  Its terms provide, among other things, for the payment of a sum to the Plaintiffs within 30 days of the date of the deed.  The Settlement Deed includes clause 5 headed ‘Assignment of Rights’ which reads:

If requested by the plaintiffs (through their solicitors) within 60 days of the date of execution of this deed, LBA and/or James Charisiou will assign to the plaintiffs any rights and causes of action held by it/him arising out of:

…

(e)the $2,970,000 paid by LBA to Madgwicks Lawyers’ trust account on or around 21 June 2019, including against Next Stage Living Moonee Ponds Pty Ltd, Next Stage Living Pty Ltd, Next Stage Living Group Pty Ltd, Trivet Property Partners Pty Ltd, Asya Balsim, Raffaele Aiello or any Related Entity.  This includes any rights and causes of action held by LBA arising in respect of the facility agreement between LBA (as lender), Trivet Property Partners Pty Ltd (as borrower) and Asya Balsim and Raffaele Aiello (as guarantors), purportedly dated 19 June 2019.

Relevant principles – strike out and summary dismissal

1. The applicable principles concerning the strike out of pleadings are not in dispute. Rule 23.02 of the Rules gives the Court the power to strike out a pleading or a part of a pleading:

23.02Striking out pleading

Where an indorsement of claim on a writ or originating motion or a pleading or any part of an indorsement of claim or pleading—

(a)does not disclose a cause of action or defence;

(b)is scandalous, frivolous or vexatious;

(c)may prejudice, embarrass or delay the fair trial of the proceeding; or

(d) is otherwise an abuse of the process of the Court—

the Court may order that the whole or part of the indorsement or pleading be struck out or amended.

1. In BFJ Capital Pty Ltd v Financial Ombudsman Service Limited (In Liq), Elliott J summarised the relevant principles in the following terms (citations omitted):[6]

The legal principles that apply to strike out applications are also without controversy.

The court may order that the whole or part of a pleading be struck out if, relevantly, a statement of claim: does not disclose a cause of action; is scandalous, frivolous or vexatious; may prejudice, embarrass or delay the fair trial of the proceeding; or is otherwise an abuse of the process of the court. Unlike an application under r 23.01, an application under r 23.02 seeks no more than a striking out or an amendment, rather than judgment ordered summarily.

The elements of an adequate pleading are straightforward. A pleading must comprise a coherent narrative of material facts which set out and frame the elements of a cause of action. It must be pleaded with sufficient clarity, must not be unintelligible, ambiguous or vague and must not raise allegations that are offensive. Where particulars are relied upon, they ought not be used to “fill material gaps” or “cure a bad statement of claim”. Ultimately, the purpose of a proper pleading is to allow, in the interests of fairness, the opposite party to know what is alleged. Where a pleading is deficient in any of these respects, an application striking out the pleading may be warranted.

A strike out application, therefore, is distinct from an application for summary judgment in that it is an objection to the manner of expression of the pleading, as opposed to the prospects of the cause of action or defence itself. Again, care must be exercised when ordering that a pleading be struck out.

[6][2019] VSC 71, [32]-[35].

1. The observations made by Harper J (as he then was) in Downer Connect Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd are apposite to the pleading here (emphasis added):[7]

Litigation is sometimes conducted to judgment with barely a glance at the pleadings. It remains generally true that good pleadings are an important, and often crucial, element in the civil justice system. When well drawn, as they always should be, they form the touchstone by which the issues are identified and the relevance of the evidence assessed.

Consistently with this, one of their primary purposes is to reveal to the opposite party how the party pleading puts its case. On reading a well-drawn statement of claim, the defendant to whom it is directed will be able to say: “These are the material facts that will be the subject of the plaintiff’s evidence. They tell a coherent, comprehensible story; and, to the extent that any additional evidence is to be called that might cause me to be taken by surprise, here is that evidence outlined in the particulars.”

A complaint that the pleadings do not achieve this end is often met with the response that the opposite party knows very well, from documents and perhaps other sources, what the case against it is. This is no answer at all, at least unless the relevant documents are properly incorporated into the pleading. It is, as a general proposition, true to say that each pleading should be sufficient in itself. And although an element in an adversarial process, pleadings are themselves intended to be the opposite of adversarial, at least to the extent that they must, if they are to perform one of their proper functions, inform the opposite party of the case that party will have to meet at trial.

But pleadings have another important audience: the Judge or Magistrate. In most cases, the opposite party will have the assistance of some knowledge of the factual background – some knowledge, in other words, of the facts against which the pleadings can be assessed. The tribunal of fact will never be in that position. The pleadings must therefore be drawn so as to allow the impartial and uninformed reader to know what the case is about. This end cannot be achieved unless the pleadings form a coherent narrative, of material fact, with the necessary detail included as particulars. They must be drawn with a careful eye to the evidence that will necessarily be called if the case is to be made out. If the party pleading does not have that evidence, then the case ought not go to trial. Indeed, it is generally true to say that it ought not to proceed beyond the point at which the party pleading appreciates, perhaps because the very act of pleading reveals it, that there is and will remain a gap in the evidence upon which the cause of action or defence is based and without which that cause of action or defence will fail.

[7][2008] VSC 77, [1]-[4].

1. The NSL Parties also seek a dismissal of the claims made against them pursuant to r 23.01 of the Rules and s 63 of the CPA.

1. Rule 23.01 of the Rules provides:

23.01   (1)       Where a proceeding generally or any claim in a proceeding –

(a)       is scandalous, frivolous or vexatious; or

(b)       is an abuse of the process of the Court –

the Court may stay the proceeding generally or in relation to any claim or give judgment in the proceeding generally or in relation to any claim.

1. The critical difference between r 23.01 and r 23.02 is that the party applying for relief under r 23.01 will contend that by no proper amendment of pleading could the opposing party plead a good cause of action or defence; the claim or defence so completely lacks foundation in fact or law that no legitimate pleading amendment can save it. In contrast, on an application under r 23.02 it is assumed that the other party has an arguable claim or defence.

1. Importantly, and in the context of relief sought under this rule, the Court will not make an order unless it is clear on the pleadings or from extrinsic evidence that the claim is unsustainable in fact or in law and that no proper amendment of the pleading can raise a good cause of action or defence.[8] The prosecution of a claim which is unsustainable in fact or in law and which cannot be cured by proper amendment are vexatious within the meaning of the Rules.

   [8]Annesley v Westpac Banking Corp [2016] VSC 323.

1. Sections 62 to 64 of the CPA provide that the Court may grant summary judgment for a defendant:

62       Defendant may apply for summary judgment in proceeding

A defendant in a civil proceeding may apply to the court for summary judgment in the proceeding on the ground that a plaintiff’s claim or part of that claim has no real prospect of success.

63       Summary judgment if no real prospect of success

(1)Subject to section 64, a court may give summary judgment in any civil proceeding if satisfied that a claim, a defence or a counterclaim or part of the claim, defence or counterclaim, as the case requires, has no real prospect of success.

(2)A court may give summary judgment in any civil proceeding under subsection (1) —

(a)       on the application of a plaintiff in a civil proceeding;

(b)       on the application of a defendant in a civil proceeding;

(c)on the court’s own motion, if satisfied that it is desirable to summarily dispose of the civil proceeding.

64       Court may allow a matter to proceed to trial

Despite anything to the contrary in this Part or any rules of court, a court may order that a civil proceeding proceed to trial if the court is satisfied that, despite there being no real prospect of success the civil proceeding should not be disposed of summarily because—

(a)       it is not in the interests of justice to do so; or

(b)the dispute is of such a nature that only a full hearing on the merits is appropriate.

1. In Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) 42 VR 27, the Court of Appeal summarised the applicable test for determining an application for summary judgment (at [35]):

(a)the test for summary judgment under s 63 of the Civil Procedure Act 2010 is whether the respondent to the application for summary judgment has a “real” as opposed to a “fanciful” chance of success;

(b)the test is to be applied by reference to its own language and without paraphrase or comparison with the “hopeless” or “bound to fail test” essayed in [General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125];

(c)it should be understood, however, that the test is to some degree a more liberal test than the “hopeless” or “bound to fail” test essayed in General Steel and, therefore, permits of the possibility that there might be cases, yet to be identified, in which it appears that, although the respondent’s case is not hopeless or bound to fail, it does not have a real prospect of success;

(d)at the same time, it must be borne in mind that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried; and that is so regardless of whether the application for summary judgment is made on the basis that the pleadings fail to disclose a reasonable cause of action (and the defect cannot be cured by amendment) or on the basis that the action is frivolous or vexatious or an abuse of process or where the application is supported by evidence.

1. There has been a tendency in recent times for strict observance to pleading rules to assume less importance.  However, in relation to particular causes of action they remain particularly important; it is generally accepted that allegations of fraud for example must be clearly pleaded and particularised.[9]  Tortious conspiracy claims fall into a similar category and should not be made lightly.[10]  Here, the allegations against NSL Group and NSL MP are allegations of unconscionable conduct.  Such claims involve the unconscientious exploitation by corporate entities of another’s special disadvantage.[11]  In this case, they have similar features to claims of tortious conspiracy and fraud.  Where such allegations are made it is important that the party against whom the allegation is made knows clearly the conduct that is alleged against it, who engaged in the conduct on behalf of the party, what the claimant’s position of special disadvantage was, how the conduct complained of amounted to unconscientious exploitation of the weaker party, and how that conduct caused the loss and damage claimed.

   [9]Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563, 573.

   [10]Hughes v Western Australian Cricket Association (Inc) (1986) 19 FCR 10.

   [11]Stubbings v Jams 2 Pty Ltd (2022) 399 ALR 409 (‘Stubbings’). 

1. In the context of a plea of unconscionable conduct Irving AsJ recently observed in Teddo Corporation Pty Ltd v Owners Corporation No 1 & Ors:[12]

Perhaps because the defendants’ primary application is for summary judgment, the parties did not address the Court in any detail on the authorities regarding pleading of unconscionable conduct claims. In my view, these principles are relevant to the determination of the defendants’ application.

While there is a general requirement that pleadings be clear and precise, a pleading which involves an allegation as serious as unconscionable conduct demands a particular degree of clarity and precision. A pleading which simply repeats the language of a provision of the ACL, and then baldly asserts a contravention of that provision without sufficient elaboration of the factual basis for the claim made, will be liable to be struck out. It is likewise not enough to plead facts which expose unfairness or general and wide ranging conduct, nor is it enough for an applicant to “plead a set of facts and a bare conclusion that what has taken place is unconscionable”.

Each element of the cause of action of unconscionable conduct needs to be properly pleaded and particularised, and an applicant must explain why the facts and circumstances stated lead to the conclusion contended for, “[i]n a coherent way, anchored in the facts”. Thus, for the purposes of an allegation of unconscionable conduct in contravention of either s 20 or s 21 of the ACL, a pleading must elaborate the particular conduct which is said to give rise to the alleged unconscionability, as well as set out why that conduct is said to be unconscionable.

[12][2022] VSC 667, [53]–[58] (‘Teddo Corporation’).

The proposed Fourth FASOC

1. The Plaintiffs sought to address the deficiencies in the Third FASOC by seeking to amend in the terms set out in the proposed Fourth FASOC.  

1. The proposed new pleading relevantly provides as against NSL Group and NSL MP as follows (with changes to the Third FASOC shown in underlining):

53S5    NSL Group, further or alternatively NSL MP:

(a)on or around 21 June 2019, procured that LBA transfer $2,970,000 of the Advanced Funds to Madgwicks Lawyers’ trust account for the ultimate benefit of NSL MP; and

(b)on or around 2 August 2019, directed that Madgwicks Lawyers transfer the $2,970,000 to Ardmillan Place Nominees Pty Ltd as deposits under two contracts and associated indemnity, being:

(i)a contract of sale for the land at 11-45 Derby Street, Moonee Ponds between Ardmillan Place Nominees as nominee for Rexnova Pty Ltd as trustee for Rexnova Unit Trust (Vendor) and NSL MP (Purchaser) dated 5 August 2019 (the Ardmillan Place Contract of Sale);

(ii)an Asset Sale Agreement between Ardmillan Place Nominees Pty Ltd as nominee for Rexnova Pty Ltd as trustee for Rexnova Unit Trust (Vendor) and NSL MP (Purchaser) dated 5 August 2019 relating to assets associated with the business operated at 11-45 Derby Street, Moonee Ponds (the Ardmillan Place Asset Sale Agreement); and

(iii)a Guarantee and Indemnity, which, pursuant to the Ardmillan Place Contract of Sale, the directors of NSL MP, Daniel Milentijevic and Joshua Balsim, and NSL Group, as the ultimate holding company of NSL MP, were required to execute (the Ardmillan Place Guarantee and Indemnity).

PARTICULARS

The plaintiffs refer to clause 20 of the Ardmillan Place Contract of Sale, which required the directors of the Purchaser, NSL MP, to guarantee the Purchaser's performance of the contract, and clause 6 of the special conditions of the Ardmillan Place Contract of Sale, which required all directors and shareholders of the Purchaser, NSL MP, and of the Ultimate Holding Company, and the Ultimate Holding Company itself, to execute the guarantee.

(c)attempted to place the $2,970,000 beyond the reach of the Plaintiffs and/or other creditors of LBA through subsequent steps.

(the NSL Ardmillan Place Conduct).

PARTICULARS

The conduct described in sub-paragraph (a) consisted of the following. On 21 June 2019, Madgwicks Lawyers, solicitors for NSL Group and NSL MP, emailed Nick Galatas of GPZ Legal, solicitors for LBA, copied to Tony Balsim, who represented NSL Group and NSL MP and Mario Charisiou, requesting that Mr Galatas' client, LBA, transfer $2,970,000 to Madgwicks Lawyers’ trust account. The stated purpose of the transfer of the funds was to provide proof that funds were in Madgwicks Lawyers’ trust account sufficient to pay a deposit payable under a draft contract of sale and asset sale agreement for the sale and purchase of the land at 11-45 Derby Street, Moonee Ponds and assets associated with the business being run on that site. These would ultimately become the Ardmillan Place Contract of Sale and Ardmillan Place Asset Sale Agreement.

At the time Madgwicks Lawyers did not specify the precise entity for which they acted. A trust account receipt issued by Madgwicks Lawyers dated 21 June 2019 notes that the funds were transferred for the following file: “SJH 038064 Next Stage Living Pty Ltd Acquisition 11-45 Derby Street, Moonee Ponds”.  However, that entity was not the ultimate purchasing entity under the Ardmillan Place Contract of Sale and the Ardmillan Place Asset Sale Agreement.

It can be inferred from the circumstances and contemporaneous correspondence that the funds were being held for the ultimate purchasing entity under the Ardmillan Place Contract of Sale and the Ardmillan Place Asset Sale Agreement. Further particulars of the entity for whose benefit the funds were being held at relevant times will may be provided following the completion of all interlocutory steps.

The express terms of the Ardmillan Place Contract of Sale and the Ardmillan Place Asset Sale Agreement are in writing and copies can be provided by the Plaintiffs' solicitors on request. 

$2,970,000 was in fact transferred from an LBA bank account to the trust account of Madgwicks Lawyers on or around 21 June 2019.

Ardmillan Place is the land and building at 11-45 Moonee Ponds VIC 3039, Certificate of Title Volume 12083 Folio 704, being Lot 2 on Plan of Subdivision 801065F.

The Plaintiffs repeat the particulars to paragraph 53S1(b) to particularise the conduct described in sub-paragraph (c). Further, the matters in sub-paragraph (c) can be inferred from the removal of James Charisiou as a director of NSL Group on or around 2 September 2019, by a form backdated to purportedly take effect from 27 April 2019.

It can be inferred from the following contemporaneous correspondence that James Charisiou was involved in the NSL Ardmillan Place Conduct subsequent to his appointment as a director of NSL Group.

(i)By email dated 18 June 2019, Anthony Cuzzupi of Jasmine Group, informed Angelo Gatto and Dimitrios Zartaloudis of Zella Advisory to the effect that James Charisiou would call them shortly to discuss arrangements for a joint bank account between LBA and one of Trivett Property Partners, NSL Group or NSL MP, and otherwise for the “loan agreement between the parties”;

(ii)       It can be inferred from an email dated 7 August 2019 from Anthony Cuzzupi to Tony and Joshua Balsim and Daniel Milentijevic (copying Raffaele Aiello), indicating that Joshua Balsim and Anthony Cuzzupi had agreed that Anthony Cuzzupi would serve as the key point of contact between LBA, on the one hand, and NSL Group, NSL MP on the other hand;

(iii)      On 21 June 2019, Mario Charisiou forwarded an email to James Charisiou instructing James Charisiou to make the payment of $2.97m from an LBA bank account to the Madgwicks Lawyers Trust Account; and

(iv)In around late August 2019 or early September 2019, James Charisiou signed a form resigning as a director of NSL Group, backdated to purportedly take effect from 27 April 2019.

53S6The NSL Ardmillan Place Conduct involved the application of the Advanced Funds otherwise than in accordance with the Commercial Loan Agreements.

53S7.The NSL Ardmillan Place Conduct was conduct:

(a)in trade or commerce for the purpose of s 20, alternatively s 21 of the ACL;

(b)further or alternatively the acquisition or possible acquisition of services from a person for the purposes of s 21 of the ACL, being the financial services supplied by the Plaintiffs to LBA, and acquired by LBA from the Plaintiffs.

PARTICULARS

The Plaintiffs refer to paragraphs 10 and 16, and the particulars thereto.

53S7A.At the time of the NSL Ardmillan Place Conduct, the Plaintiffs were subject to a special disadvantage for the purposes of s 20 of the ACL, as they:

(a)       were, and continue to be, the victims of the Unlawful Conduct;

(b)were unaware that they had been the victims of the Unlawful Conduct at the time of the advancement of the Advanced Funds; and

(c)would not have made or procured the advance of the Advanced Funds if they had knowledge of the Unlawful Conduct.

PARTICULARS

The Plaintiffs refer to paragraphs 10, 16 and 17, and the particulars thereto.

53S8.At the time of the NSL Ardmillan Place Conduct, NSL Group, further or alternatively NSL MP, had the James Charisiou Knowledge.

PARTICULARS

From 13 June 2019 to 2 September 2019, James Charisiou was a director of NSL Group. The Plaintiffs refer to and repeat the particulars to paragraph 7.

Further particulars will may be provided following the completion of all interlocutory steps.

53S9To the extent that the James Charisiou Knowledge arose in any capacity of James Charisiou other than as a director of NSL Group, that knowledge was relevant to the interests of:

(a)NSL Group, because the transaction into which NSL Group, alternatively its wholly-owned subsidiary NSL MP, was about to enter would cause harm to NSL Group, alternatively its wholly-owned subsidiary NSL MP, because the transaction was unlawful as the NSL Ardmillan Place Conduct would involve the receipt of Dissipated Funds and the application of funds otherwise than in accordance with the Commercial Loan Agreements; and

(b)further or alternatively NSL MP, because it was a wholly owned subsidiary of NSL Group, the proposed purchaser entity under the Ardmillan Place Contract of Sale and the Ardmillan Place Asset Sale Agreement and the proposed registered proprietor of the land at 11-45 Derby Street, Moonee Ponds.

53S10By engaging in the NSL Ardmillan Place Conduct, whilst having the James Charisiou Knowledge, NSL Group, further or alternatively NSL MP, has engaged in unconscionable conduct in contravention of s 20 alternatively s 21 of the ACL.

53S11The Plaintiffs have suffered loss or damage, alternatively are likely to suffer loss and damage, by reason of the contraventions of s 20, alternatively s 21 of the ACL by NSL Group, further or alternatively NSL MP, alleged in paragraph 53S10 above.

PARTICULARS

The loss or damage is the lost opportunity to recover the Advanced Funds which had been provided by LBA for the benefit of NSL MP as alleged in paragraph 53S5 (a) above.  As at the time of the actions alleged in paragraph 53S1(b) and 53S5(c), being the attempt to place Advanced Funds beyond the reach of the Plaintiffs and/or other creditors (18 and 19 August 2019):

(a)LBA otherwise still possessed legal title to those Advanced Funds and could have demanded their return; and/or

(b)the right of LBA to recover those moneys was a valid chose in action that could have otherwise been enforced at the suit of LBA.  

By the actions alleged in paragraph 53S1(b) and 53S5(c), NSL Group, alternatively NSL MP purported to recharacterize the purpose for and terms on which these Advance Funds had been advanced by:

(a)making LBA’s right to recover those Advanced Funds a right as against Trivett rather than NSL MP, being the entity that had received the benefit of those Advanced Funds and had rights of recovery of those Advanced Funds under the Ardmillan Place Contract of Sale and Ardmillan Place Asset Sale Agreement;

(b)characterising the purpose of the advance of those Advanced Funds as being ‘[f]or the working capital of the Borrower [Trivett]’ rather than the more confined purpose of funding the completion/settlement of the Ardmillan Place Contract of Sale and Ardmillan Place Asset Sale Agreement; and

(c)making LBA’s right to recover those Advanced Funds contingent on the terms of the facility agreement between LBA and Trivett, which include a term rendering LBA liable to Trivett for all loss or damage suffered by Trivett if LBA failed to provide advances under the facility agreement, 

so as to wrongly impede, delay and/or prevent the recovery of such monies by the Plaintiffs as a creditor of LBA.

Had that conduct not occurred, those Advanced Funds and/or the chose in action of LBA to recover them would have clearly been (without accepting they were properly otherwise not) the subject of the freezing order made by Justice McDonald of this Honourable Court on 23 August 2019 in respect of, effectively, all of the assets of LBA (the Freezing Order), which:

(a)would have prevented LBA from diminishing such Advanced Funds and/or the relevant chose in action;

(b)would have obliged LBA to identify those Advanced Funds and/or the relevant chose in action in the affidavit required to be sworn by 16 September 2019 as to its assets, pursuant to the terms of the Freezing Order;

(c)would have resulted in the Plaintiffs promptly requiring that LBA recover those moneys, for the benefit of the Plaintiffs. 

The Plaintiffs refer in particular to paragraphs 6 and 8 of the Freezing Orders.  

The Plaintiffs’ current best estimate of their loss and damage is the $2,970,000 in Advanced Funds paid into Madgwicks Lawyers’ trust account by LBA.

1. The proposed Fourth FASOC does not establish a coherent narrative. It includes a number of irrelevant allegations and fails to plead all (or indeed any) material facts which establish the necessary causative link between the alleged contraventions of ss 20 or 21 of the ACL by NSL Group or NSL MP to found the claim for loss and damage of $2,970,000, which appears in paragraph 53S11. It baldly asserts unconscionable conduct without identifying the conduct with precision; much less setting out why the conduct is said to be unconscionable. It adopts the approach of including many allegations of material fact in fairly broad terms rolled up in the same paragraph which it then defines in conclusionary terms as if those matters were a single material fact.

Paragraph 53S5

1. Running through the paragraphs in turn, the first part of paragraph 53S5(a) is clear enough; although there is a vagueness about the phrase ‘for the ultimate benefit of NSL MP’, the meaning of which is unclear but overall not particularly problematic.  In any event it is admitted.  Paragraph 55S5(b) can be subject to similar criticisms, for example there is a disconnect between a direction on 2 August 2019 to pay a deposit under certain contracts when the contracts are not pleaded to have come into existence until 5 August 2019 and the payment of the deposits are deposits under the two contracts, not under the two contracts and the guarantee as alleged, but nothing really turns on these drafting infelicities. 

1. Paragraph 53S5(c) is more problematic.  The paragraph alleges that NSL Group or alternatively NSL MP ‘attempted to place the $2,970,000 beyond the reach of the Plaintiffs and/or other creditors of LBA through subsequent steps.’ There is no plea as to the fate of the attempt; if the attempt failed, it is not clear how the fact of the attempt is relevant; if the attempt succeeded, then it is the fact of the $2,970,000 being placed beyond the reach of the Plaintiffs and/or other creditors of LBA which is potentially relevant although the pleading is silent as to how that is so. There are no particulars of the attempt; nor of the subsequent steps and the relevance of an attempt (successful or otherwise) to place the $2,970,000 beyond the reach of ‘other creditors of LBA’ is not further explained.  The time period referable to the allegation is not set out.  

1. The added particulars of paragraph 53S5(c) do not clarify much; the new phrase in the particulars ‘James Charisiou was involved in the NSL Ardmillan Place Conduct subsequent to his appointment as a director of NSL Group’ is more properly a material fact but more importantly is impermissibly vague, but presumably relates to the conduct now set out in paragraphs (i) to (iv) of the particulars. Paragraph (ii) of the particulars does not mention James Charisiou at all; paragraph (iv) relates to his resignation as a director of NSL Group effected by him signing a form in around late August 2019 or early September 2019 ‘backdated to purportedly take effect 27 April 2019’, which begs the question as to whether the Plaintiffs accept that its effect is that he was not a director from 27 April 2019 or not.  If he was not, then he was not a director at the relevant time.  If the signing of the form is ineffective, it is not clear how an ineffective attempt to resign as a director of NSL Group constitutes a particular of the Ardmillan Place Conduct (as defined).  It is possible that the Plaintiffs are referencing a piece of evidence which they contend is relevant to credit or constitutes some sort of admission by conduct.  If that is so, it is not a matter that should form part of a pleading.   Either way, there is no explanation as to how this gives rise to an inference or constitutes a particular of the allegation that NSL Group or NSL MP ‘attempted to place the $2,970,000 beyond the reach of the Plaintiffs and/or other creditors of LBA’.  Quite what constituted the attempts by NSL Group or NSL MP to place the $2,970,000 beyond the reach of the Plaintiffs and/or other creditors, when this occurred and what fate befell the attempt remains entirely unparticularised and unclear although some light is shed as to the significance of the allegation by the added particulars of loss and damage contained in paragraph 53S11, which is analysed in greater detail below. 

Paragraph 53S6

1. There is no issue with paragraph 53S6.

Paragraph 53S7 – the s 21 of the ACL issue

1. Section 21 of the Australian Consumer Law (‘ACL’) reads:

21       Unconscionable conduct in connection with goods or services

(1)       Unconscionable conduct prohibited

A person must not, in trade or commerce, in connection with:

(a)the supply or possible supply of goods or services to a person; or

(b)the acquisition or possible acquisition of goods or services from a person.

1. In argument it became clear that in the newly added words to paragraph 53S7, the words ‘in connection with’ should have been included after ‘alternatively’. With this addition, the pleading is clarified so as to allege that the impugned conduct is in connection with services comprising the provision of the loan funds (or the agreement to provide the funds) with the relevant supplier being the Plaintiffs and the acquirer being LBA.  This overcomes the pleading defect.

1. The NSL Parties submit that the claims against them fail in limine because there has been no provision of services between the Plaintiffs and either of the NSL Parties. They submit that the conduct complained of is conduct which occurred subsequent to the provision of the services by the Plaintiffs to LBA and accordingly does not fall within the scope of s 21 of the ACL. They submit that the defect cannot be cured by amendment and accordingly the claim with respect to the contravention of s 21 of the ACL should be dismissed.

1. The NSL Parties submit that s 21 is not directed to conduct at large but only to conduct in trade or commerce in connection with the supply or acquisition of goods or services to a specific person by a specific person. They rely upon the decision of the Full Court of the Federal Court of Australia in Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia,[13] (affirming the decision of Lindgren J at first instance):[14]

As a matter of language s 51AC(1) is directed not to conduct in trade or commerce generally, but rather to conduct in trade or commerce in connection with a particular kind of transaction, namely the supply or acquisition of goods or services to or from a person (other than a listed public company). This may be contrasted with s 52(1) which simply provides that a corporation shall not in trade or commerce engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

That s 51AC(1) is concerned only with conduct in relation to dealings between the corporation in question and a particular kind of person (a person other than a listed public company) is confirmed by s 51AC(3) and 51AC(4). In each case some 12 factors which may be taken into account are stipulated. It is true that they are non-exclusive but they are all concerned with dealings between “supplier” and “business consumer” (sub-s (3)) or between “acquirer” and “small business supplier” (sub-s (4)). They contemplate that the Court is engaged in the task of determining whether there has been a contravention of s 51AC(1), and thus are confined to a particular kind of transaction, namely the supply or acquisition of goods or services as between stipulated categories of person.

The conclusion that s 51AC is not concerned with the impact of conduct on third parties is confirmed by the legislative history: see Australian Competition and Consumer Competition v CG Berbatis Holdings Pty Ltd (No 2) [2000] FCA 2; (2000) 96 FCR 491 at 494-496. In the present case his Honour (at [255]-[259]) recounts in detail the legislative history. It is not necessary to repeat that history in these reasons. In my view it shows convincingly that the present s 51AC can be traced back to the original recommendation of the Swanson Committee in 1976 that unconscionable conduct be prohibited “to give the Act a greater ability to deal with the general disparity between buyers and sellers.”

[13](2002) 122 FCR 110, [114]-[116] (Black CJ, Heerey and Tamberlin JJ) (‘Monroe’).

[14][2001] FCA 1056; Good Living Company Pty Ltd as trustee for the Warren Duncan Trust No 3 v Kingsmede Pty Ltd [2021] FCAFC 33, [165]-[168].

1. I do not consider that the claim against the NSL Parties in respect of the breach of s 21 of the ACL should be summarily dismissed. In the decision in Monroe at first instance, Lindgren J said:[15]

Both the context internal to s 51AC and the legislative history to which I have referred, teach that the expression “in connection with” in s 51AC requires that the conduct impugned “accompany”, “go with” or “be involved in” the supply of the goods or services, and that it is not sufficient that, as alleged in the present case, such a supply be the occasion of unconscionable conduct of the supplier directed to an unrelated third party with which the supplier has no dealings at all.

[15]Monroe (n 13) [260].

1. I accept that this case is one where there are no dealings pleaded between the supplier of the services (the Plaintiffs) and the NSL Parties. 

1. However, the critical question is whether the conduct on the part of the NSL Parties complained of by the Plaintiffs, is conduct which can be said to be ‘in connection with’ the supply by the Plaintiffs of financial services to LBA. As described by Lindgren J in Monroe, the enquiry is whether the impugned conduct ‘accompanies’ or ‘goes with’ or ‘[is] involved in’ the supply of the services by the Plaintiffs to LBA.  The alternate possibility urged by the NSL Parties is that the antecedent supplied by the Plaintiffs of finance to LBA simply constituted the occasion by which the NSL Parties’ alleged unconscionable conduct later occurred.

1. In written submissions, the Plaintiffs argued that the NSL Parties engaged in unconscionable conduct towards the Plaintiffs in connection with the Plaintiffs’ supply of services to LBA ‘by procuring an on-transfer of a portion of the advanced funds in an unauthorised way’.  This allegation is not pleaded in either the Third FASOC or the Fourth FASOC and is vague in any event.  There is no pleading or particulars which suggest clearly that any person whose acts or omissions are said to be those of NSL MP or NSL Group knew that funds had been advanced by the Plaintiffs to LBA.  However, the question as to whether that which occurred could be said to ‘accompany’ or ‘go with’ the supply of the Plaintiffs’ financial services to LBA is a factual question which is not appropriate to determine on the present material, including in circumstances where the claim as presently framed is unclear. 

1. As the cause of action involves matters of fact which have not been clearly pleaded and because, in any event, the claims in respect of the contravention of s 20 of the ACL are not said to justify summary dismissal on the same basis, I do not consider it appropriate to dismiss the claims against the NSL Parties in respect of the alleged contravention of s 21.

Paragraph 53S7A

1. The new paragraph 53S7A pleads that the Plaintiffs were at a special disadvantage, albeit only for the purposes of s 20 of the ACL which arguably leaves at large how the impugned conduct is unconscionable for the purposes of the later contravention of s 20 of the ACL, but that omission can be put to one side. The NSL Parties maintain that despite the proposed addition of paragraph 53S7A, the unconscionable conduct plea is deficient. This argument is more conveniently dealt with in relation to paragraph 53S10.

Paragraphs 53S8 and 53S9– attribution issues

1. Paragraph 53S8 is deficient insofar as it concerns NSL MP and problematic as it concerns NSL Group.  It is unclear what interlocutory steps remain given that discovery has been completed between the Plaintiffs and the NSL Parties.  As matters stand, the paragraph is silent as to the basis on which the James Charisiou Knowledge constitutes the knowledge of NSL MP; the only matter particularised references his status as a director of NSL Group. 

1. Paragraph 53S9 is more problematic; it implies but does not make clear that James Charisiou may have obtained the James Charisiou Knowledge otherwise than as a director of NSL Group, presumably as a director of LBA.  It then alleges that this earlier or otherwise acquired knowledge was relevant to the interests of NSL Group alternatively its wholly owned subsidiary, NSL MP, but does not specify the transaction either was about to enter into or when.  It then pleads that the transaction would cause harm to NSL Group or NSL MP because it was ‘unlawful’ presumably because it involved the deployment of funds advanced presumably (but not alleged) by LBA contrary to the loan agreements between LBA and the Plaintiffs.  Assuming in the Plaintiffs’ favour that the plea is legally relevant,[16] the plea goes nowhere.  It is not subsequently referred to in the following paragraphs 53S10 or 53S11 which comprise the balance of the pleaded allegations.

   [16]The plea is further examined in the context of the Fourth FASOC and the application for summary dismissal – see [70] below.

1. NSL MP submits that the claim against it should be summarily dismissed or struck out with no leave being given to replead because there is no legal basis upon which to allege that either the conduct or the state of mind of James Charisiou can be imputed to or otherwise regarded as the conduct of NSL MP. 

1. James Charisiou is alleged of course to have been the sole director of LBA at all relevant times.  In addition, as noted above, it is also alleged that he was a director of NSL Group between approximately 13 June 2019 and 2 September 2019.  The NSL Parties deny that James Charisiou was appointed to the position of a director of NSL Group during the period alleged and in their defence plead that the lodgement of the form appointing him occurred without the authorisation of NSL Group or its directors.

1. Nevertheless, for the purposes of determining this application, all parties accepted that it is appropriate to consider the claims on the basis that James Charisiou was a director of NSL Group between 13 June 2019 and 2 September 2019. 

1. However, the fact that James Charisiou was also a director of LBA which is the counterparty to the transactions identified by the Plaintiffs as giving rise to the contraventions of the ACL by NSL Group and NSL MP requires a precision in the framing of the claims against NSL Group and NSL MP in particular, which is not reflected in the Third FASOC or the proposed Fourth FASOC.

1. In neither pleading do the Plaintiffs plead sufficient material facts or particulars by which James Charisiou’s knowledge, whether acquired in his capacity as a director of NSL Group, or in any other capacity, can be imputed to NSL MP. 

1. Paragraph 53S9 of the pleading is set out above; as earlier noted above, the relevance of the paragraph is not apparent because no subsequent paragraph in the pleading refers back to paragraph 53S9.

1. Nevertheless, the paragraph, even considered in isolation, is problematic.  It simply alleges that knowledge acquired by James Charisiou, other than as a director of NSL Group, was relevant to ‘the interests of NSL Group and NSL MP’ (without specifying what those interests are) because an unspecified transaction that NSL Group or its subsidiary were proposing to enter into would cause unspecified harm to NSL Group or to its subsidiary because the transaction was ‘unlawful’ in some unspecified way.  Beyond the allegation that James Charisiou’s knowledge is relevant in respect of those concerns, no part of the pleading alleges that by reason of these allegedly relevant matters, James Charisiou’s knowledge can thereafter be regarded as the knowledge of either the company of which he is pleaded to be a director, NSL Group, much less the subsidiary NSL MP.

1. In the Plaintiffs’ written outline of submissions, they submitted that the knowledge of James Charisiou can be attributed to NSL Group and also to NSL MP in two ways. 

1. First, the Plaintiffs submit that James Charisiou was aware that the transaction into which NSL Group and its wholly owned subsidiary, NSL MP, were about to enter was unlawful.  The submission cross-references paragraph 18 of the Third and Fourth FASOC which does not in fact plead knowledge on the part of James Charisiou that this proposed transaction was unlawful.  The Plaintiffs also refer in the submissions to James Charisiou’s awareness that the funds involved in the NSL Ardmillan Place Conduct had been procured by the provision of forged documents to the Plaintiffs and that it involved the application of funds otherwise than in accordance with the commercial loan agreement.  This is pleaded in paragraphs 17 and 18 of the Third and Fourth FASOC but it is not the same thing as alleging that the subsequent transaction whether between LBA and the NSL Parties or between LBA and Trivett is unlawful. 

1. The Plaintiffs then submit that in those circumstances James Charisiou was subject to a duty to inform NSL Group, as well as his fellow directors of NSL Group, of that fact and that ‘NSL Group, as well as the fellow directors of NSL Group were under a duty to receive this information such that both NSL Group and its directors will be fixed with that knowledge (and that) Joshua Balsim and Daniel Milentijevic (as) directors of NSL Group at the relevant time … were also the directors of NSL MP’.  The Plaintiffs note that ‘it is important to remember that “an unqualified duty to communicate information to another person will generally be presumed to be fully discharged with the result that knowledge of the information is regarded as attributed to that other person”’ relying on LMI Australia Pty Ltd v Balderston Hornibrook.[17]

   [17](2002) 18 BCL 57, 74 [86].

1. The Plaintiffs submit that it is artificial to accept that when Mr Balsim and Mr Milentijevic were subject to a duty to receive the James Charisiou knowledge, they were operating solely in their capacity as directors of NSL Group such that the knowledge is quarantined within NSL Group and is not attributed to NSL MP which is a wholly owned subsidiary of NSL Group.  They otherwise submit that this would ‘be a particularly non-sensical outcome in circumstances where James Charisiou’s obligation to disclose this information to NSL Group and his fellow directors of that entity arose by reason of the fact that the NSL Ardmillan Place Conduct was likely to cause harm not only to NSL Group but also to NSL MP as the proposed purchaser entity under the contract to acquire Ardmillan Place’.

1. None of these matters, which are highly-contestable, is pleaded.  Whether they are maintainable at law is considered below, but the absence of pleading poses additional problems including because there is no identification of the harm that could be caused to NSL Group or NSL MP if the putative transaction was entered into. 

1. The gist of the case apparently sought to be advanced, but not pleaded, is that James Charisiou had a duty to inform NSL Group of his antecedent wrongdoing carried out as a director of LBA; and that this duty extended to an obligation to inform not just NSL Group but his fellow directors of that fact; that the directors of NSL Group (not simply NSL Group) are then fixed with that knowledge, and that this knowledge is then attributed to another company of which they (but not James Charisiou) are directors, being NSL MP.

1. Secondly, the Plaintiffs submit that Belmont Finance Corporation v Williams Furniture Ltd (No 2)[18] is authority for the proposition that the disclosure obligation operates such that an officer of a company is under a duty, if he or she is aware that a transaction into which a wholly owned subsidiary of the company of which he or she is director is about to enter is illegal or tainted with illegality, to inform the board of that company (ie, the subsidiary) of that fact.  Thus, a director of company A who is aware of the proposed entering into of a transaction by company B (which is a subsidiary of company A) has a duty to inform company B of that matter, notwithstanding that the person is not a director of the subsidiary.  This duty is not pleaded; nor is the particular transaction that the subsidiary, here NSL MP, is about to enter identified with any precision, nor is it alleged how or why that transaction is ‘illegal or tainted with illegality’. 

   [18][1980] 1 All ER 393, 404EF (‘Belmont’).

1. It is not appropriate that highly-contested matters of this nature are not contained in the relevant pleading but instead are raised in written submissions in opposition to a strike-out application, particularly where the matters had been canvassed in submissions prior to the drafting of the proposed Fourth FASOC. 

1. In any event, I do not accept that either Belmont, or LMI (or any other authority cited to me) is authority for the proposition that the duty imposed on a director to inform a company of which he was a director, when that company is about to enter into an illegal transaction[19] encompasses an additional duty to inform all directors of that company with the effect that the imputed knowledge of those directors is then imputed to another company of which the latter, but not the former, are directors.  There is nothing in LMI which supports any such holding of a form of imputed knowledge from director A to director B and then by director B to company C.

   [19]There is also a real issue here about whether a transaction about to be entered into by the NSL Parties or Trivett is ‘illegal’ or ‘unlawful’ in a relevant sense.

1. The relevant holding in LMI is that in the circumstances of that case, all knowledge and information possessed by each director of the company, DSC (which was a subsidiary of Balderstone Hornibrook International) (‘BHI’), was attributed to each other company in the group of which those persons were directors.  On that basis, the knowledge and information possessed by any director of DSC was therefore regarded as being knowledge of both the parent, BHI, and its sibling entity, Balderstone Hornibrook Pty Ltd.  The case is not authority for the proposition that fellow directors are also attributed with the knowledge of one director and then this attributed knowledge is then attributed to another company of which the former but not the latter are directors.

1. Nor is Belmont authority for the proposition that a director of company A has a duty to disclose to company B (a subsidiary of company A) the contemplated entering into a transaction by B which is illegal.  Given that the person concerned is not a director of the subsidiary, it is difficult to see the legal basis for the imposition of any such duty.  No case cited postulates a rationale as to how the duty could be said to arise.  Certainly Belmont does not. 

1. The critical passage in Belmont is contained in the judgment of Buckley LJ (with whom Goff and Waller LJJ agreed) and reads as follows (emphasis added):[20]

[The common director’s] knowledge much, in my opinion, be imputed to the companies of which they were directors and secretary, for an officer of a company must surely be under a duty, if he was aware that the transaction into which his company or a wholly owned subsidiary is about to enter is illegal or tainted with illegality, to inform the board of that company of that fact.  Where an officer is under a duty to make such a disclosure to his company, his knowledge is imputed to the company.

[20]Belmont (n 18) 404.  

1. Nothing said in Belmont imposes a duty of disclosure on a director to the board of a company of which he or she is not a director; subsidiary or not.  Necessarily, no such knowledge is imputed to such a company. 

1. The quoted passage supports the proposition that a director of a parent company who becomes aware of the fact that a wholly owned subsidiary of a company is about to enter into an illegal transaction, must inform the board of the parent company of that fact but no more.  In such circumstances the knowledge of the director is imputed to the holding company.

1. It does not support the proposition that the knowledge of James Charisiou is imputed to NSL MP in circumstances where he is not a director of NSL MP, notwithstanding that NSL MP is a subsidiary of NSL Group.

1. Companies act through individuals.  It is important in a case such as the present to plead the relevant acts of identified individuals which are relied upon as constituting the acts or omissions of the company. Neither the present pleading or the proposed Fourth FASOC do this.

1. Where the company’s state of mind is relevant, then the company can be taken to acquire knowledge through two categories of natural persons.  The first applies where the state of mind is that of a person who constitutes the company’s directing mind and will constitute it in relation to the particular transaction in question.[21]  The second applies in the case of directors, employees and other agents whose knowledge may be considered to be the knowledge of the company, where those persons have authority to receive and communicate relevant information to the company.

   [21]El Ajou v Dollar Land Holdings Ltd plc [1994] 2 All ER 685; The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 70 ACSR 1 [6144].

1. Cases where the knowledge is that of a director who is a director of two companies involved in the same transaction require special consideration.  Where the relevant director is in control of the two companies, each company will know what the other knows, because they have the same directing mind and will.  Where the director is only one of a number of directors of two companies and where the director acquires information in the course of acting for company A, the knowledge will not automatically be imputed to company B.[22]  That will be the case even where they are involved in a mutual transaction.[23]  Generally, for the knowledge acquired in the capacity as a director of company A to be imputed to company B, the relevant director must be under a duty to company A to communicate the knowledge to company B and be under a duty to company B to receive the knowledge.[24]

   [22]Re Marseilles Extension Railway Co (1871) LR 7 Ch App 161.

   [23]Re Hampshire Land Co [1896] 2 Ch 743; Re Fenwick Stobart & Co Ltd [1902] 1 Ch 507.

   [24]Le Ajou v Dollar Land Holdings plc [1994] 2 All ER 685.

1. Without more, the fact that two companies have common directors does not result in the knowledge of one company being attributed to the other company.[25] 

   [25]Clarke (as trustee of the Clarke Family Trust) v Great Southern Finance Pty Ltd (receivers and managers appointed) (2010) 80 ACSR 219, [17]-[32].

1. None of these nuances are dealt with in either the Third FASOC or the proposed Fourth FASOC, and the basis as disclosed in written submissions for the attribution of James Charisiou’s knowledge to NSL MP is not supported by authority. 

1. However, because neither the Third FASOC or the proposed Fourth FASOC plead with any precision the nature of the basis on which NSL MP is liable, there is a difficulty in concluding at this point that there is no tenable basis for any claim against NSL MP, such as warrants summary dismissal of any claim against NSL MP.

Paragraph 53S10- unconscionable conduct

1. Paragraph 53S10 contains a bare allegation of unconscionable conduct in contravention of s 20 and s 21 of the ACL. The making of a bare allegation is the vice identified in Teddo Corporation.

1. Section 21 of the ACL is set out above at paragraph 44. Section 20 of the ACL reads:

20(1)       Unconscionable conduct prohibited

A person must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law from time to time.

1. Unconscionable conduct is conduct not in good conscience, irreconcilable with what is right and reasonable.  The origins of the concept may be traced back to statements of the High Court in Blomley v Ryan.[26]  In that case, Kitto J said:[27]

The Court has power to set aside a transaction … whenever one party to a transaction is at a special disadvantage in dealing with the other party because of illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affecting his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands.

[26](1956) 99 CLR 362.

[27]Ibid, [415].

1. Neither paragraph 53S7A, 53S10, or any other paragraph, pleads as a material fact the conduct by persons whose conduct is attributed to NSL MP or NSL Group by which either of them is said to have exploited the Plaintiffs’ special disadvantage.  Nor are any material facts pleaded by which that exploitation was unconscientious.

1. The plea also references the NSL Ardmillan Place Conduct on behalf of NSL Group and NSL MP.  The first two elements of that conduct on their face are unremarkable.  Those elements in any event are not pleaded or particularised as involving James Charisiou as a representative of NSL Group or NSL MP (or in fact at all) and are only tangentially connected to the Plaintiffs.  Those parts of the plea allege that NSL Group or NSL MP obtained $2,970,000 from LBA, which sum had earlier been obtained by LBA in breach of agreements between LBA and the Plaintiffs, which NSL Group or more likely NSL MP then used to pay a deposit under a sale contract it had entered into.  The plea does not say how or why the first two components of the conduct are unconscionable.

Paragraph 53S11

1. The new particulars of paragraph 53S11 do not clarify the loss and damage claim.  They make the plea difficult to understand and give rise to inconsistencies or at the very least confusion with earlier paragraphs.  The new particulars involve, for the most part, allegations of material fact.  Given their importance, they should be pleaded as such.

1. The new particulars read in part “by the actions alleged in paragraph 53S1(b) and 53S5(c), NSL Group alternatively NSL MP …”. 

1. The problems with paragraph 53S5(c) are dealt with at paragraphs 43 and 44 above. 

1. Paragraph 53S1(b) is not alleged as a material fact for liability purposes as against the NSL Parties but finds its way into the pleading as a particular of loss and damage.  Rather, paragraph 53S1(b) alleges that ‘between  June and October 2019 Mario attempted to place those Advanced Funds beyond the reach of the Plaintiffs and/or other creditors of LBA in so doing and through subsequent steps’.  This conduct is defined as the ‘Mario Charisiou Ardmillan Place Conduct’ and is confined to the claim against Mario.

1. It appears similar to, but not the same as the NSL Ardmillan Place Conduct alleged against NSL Group and NSL MP which is pleaded in paragraph 53S5(c). 

1. This is unsatisfactory as the 53S1(b) conduct is not relied upon as conduct of NSL Group or NSL MP for liability purposes and yet appears in particulars as causative of loss and damage. Thus, the loss and damage claim pleaded against the NSL Parties is loss and damage suffered by the Plaintiffs in part as a result of the Mario Charisiou Ardmillan Place Conduct, for which the NSL Parties are not alleged to be liable.  Conversely, the loss and damage suffered by the Mario Charisiou Ardmillan Place Conduct has been left unchanged and hence is different to the loss and damage claimed against NSL Group and NSL MP.  In both cases there is a disconnect between the liability conduct pleaded and the conduct which is said to have caused the loss and damage. 

1. There are more particulars provided of paragraph 53S1(b) than there are of 53S5(c).  The particulars of paragraph 53S1(b) reference ‘Mario Charisiou on behalf of LBA, subsequently progressing negotiations to put in place a facility agreement between LBA as lender, Trivett Property Partners Pty Ltd, a majority shareholder of NSL Group and in turn NSL MP as borrower, and Asya Balsim and Raffaele Aiello as guarantors with a facility limit of $18,500,000’ and that ‘on 18 and 19 August 2019 and on other subsequent occasions Mario instructed representatives of Trivett Property Partners Pty Ltd, alternatively NSL Group and NSL MP to: (i) execute and back date a copy of the proposed facility agreement and (ii) create and issue backdated draw down requests under the backdated facility agreement’ and that “Those representatives of Trivett Property Partners (‘Trivett’), alternatively NSL Group and NSL MP now rely on those backdated documents which is impending and/or delaying the Plaintiffs and/or other creditors of LBA from recovering those funds paid into Madgwicks Lawyers’ trust account for the ultimate benefit of NSL MP’.  This presumably is a reference to the Trivett Facility Agreement.[28] 

   [28]See above at [23(n)].

1. There are a number of problems with this paragraph; including whether the borrower under the Trivett Facility Agreement is Trivett or NSL MP and if it is the latter how that can be the case where NSL MP is not a party to the Trivett Facility Agreement.  This also exposes the problem with the part of the particulars which alleges that (unnamed) representatives of NSL Group and NSL MP were instructed by Mario to execute an agreement to which NSL Group and NSL MP were not party.  Similarly, the reference to reliance by the representatives of Trivett, NSL Group and NSL MP on the backdated documents as ‘impeding and/or delaying the Plaintiff’s and/or other creditors of LBA from recovering funds paid’ into the trust account is both confusing and impermissibly vague.  If the reliance is ill founded, then it only has consequence because the Plaintiffs did or did not take unspecified actions.  If the reliance is justified it can only be because the conduct is efficacious.  The Plaintiffs’ claims do not make the position clear as to which case it wants to run.

1. Although unclear, presumably paragraph 53S1(b) and 53S5(c) are in substance the same allegation with the former focussing on the conduct of Mario and the latter on the conduct of NSL Group and NSL MP. 

1. For the purposes of analysing the claim further, I will put the above (important) uncertainties to one side.

1. Returning to the new particulars to paragraph 53S11, they then refer (presumably) to the Trivett Facility Agreement as ‘purporting’ to recharacterise the purpose and terms on which the Advanced Funds were advanced by making LBA’s right to recover a right against Trivett, ‘contingent’ on the terms of the Trivett Facility Agreement with the recharacterised purpose as being for ‘working capital’ of Trivett rather than ‘the more confined purpose of funding the completion/settlement of the Ardmillan Place Contract of Sale and Ardmillan Place Asset Sale Agreement’ ’so as to wrongly impede, delay and/or prevent the recovery of such moneys by the Plaintiffs as a creditor of LBA’.  The use of phrases such as ‘purported’ is confusing as it does not make clear whether the Plaintiffs’ concede the efficacy of the recharacterisation or not.  If it is not efficacious the Trivett Facility Agreement can be put to one side; if it is the former, then the recharacterisation is efficacious but wrongful and causative of loss in ways not clearly identified. 

1. Doing my best to read the pleading as a whole and doing so in light of the Joinder Affidavit (as I was urged to do), in relation to the dismissal application, the gist of the Plaintiffs’ complaint relates to what occurred on about 18 or 19 August 2019.

1. By 18 or 19 August 2019, LBA had breached the terms of its agreement with the Plaintiffs and had drawn down the funds from the escrow account.[29]  This is pleaded by the Plaintiffs in paragraph 16 of the Third and Fourth FASOC.  The Plaintiffs also rely upon the fact that on 16 August 2019, they confronted James Charisiou and allege that James Charisiou had thereby been put on notice that the Plaintiffs were aware of his conduct.[30]

   [29]See [5] above.

   [30]Joinder affidavit, [9(k)], albeit that this is not pleaded.

1. Prior to this date, LBA had transferred $2,970,000 of the funds taken out of the escrow account into Madgwicks’ trust account on 21 June 2019 and then that sum had been transferred on or about 2 August 2019 as deposits due from NSL MP under the Ardmillan Place contract of sale in the Ardmillan Place asset sale agreement (‘Deposit Payment’).[31] 

   [31]This definition is used in these reasons but does not appear in the pleading.

1. Possibly the case that the Plaintiffs are seeking to make is that after James Charisiou was put on notice that the Plaintiffs were aware of his wrongdoing, NSL Group, NSL MP, Mario and James Charisiou sought to impede any attempts by the Plaintiffs to recover any losses sustained by James Charisiou’s misdeeds by providing for the Deposit Payment to be recharacterised as a payment by LBA to Trivett pursuant to the Trivett Facility Agreement (‘Facility Agreement Conduct’)[32] and that as a result, the Plaintiffs have suffered loss and damage in some way. The Plaintiffs make no allegation that Trivett was involved in that conduct, although Trivett was of course the borrower under the new arrangement reflected in the Trivett Facility Agreement.

   [32]This definition is used in these reasons but does not appear in the pleading.

1. The Plaintiffs’ complaint appears to be that they lost the opportunity to recover the Deposit Payment because had it not been for the Facility Agreement Conduct, they would have ‘promptly required LBA to recover those moneys for the benefit of the plaintiffs’.[33]  Beyond this rather stark assertion, the Plaintiffs do not plead or particularise how they would have done this, save that the Plaintiffs refer to the freezing order made 23 August 2019, a few days after the Facility Agreement Conduct had occurred and the Trivett Facility Agreement executed.  It is difficult to understand the relevance of the freezing order; it occurred after the Facility Agreement Conduct had occurred and in any event confers no rights on the Plaintiffs to do anything save that any actions of LBA in contravention of it may have given rise to an actionable contempt.

   [33]Third FASOC, [53S11(c)].

1. In the Plaintiffs’ written outline of submissions, they refer to paragraph 16 of the Third FASOC which refers to the voluntary return of moneys by LBA as relevant to this part of the case.  No such allegation appears in the pleading as against the NSL Parties by cross-reference or otherwise. How LBA could have voluntarily returned moneys loaned to NSL MP, or Trivett, or held in Madgwicks’ trust account, or how the Plaintiffs could have compelled LBA to do this, is not explained in the written outline of submissions much less addressed at all in the pleading.  A proper pleading of damages for loss of opportunity requires an express allegation as to the steps the plaintiffs would have taken, what then would have occurred, and how that caused loss to the plaintiffs.[34]  Of course, when LBA sought to recover the $2,970,000 for itself, Trivett refused.[35]

   [34]Barnes v Forty Two International Pty Ltd (2014) 316 ALR 408, [83]-[119].

   [35]See [23 (v)] above .

1. The loss of the opportunity to ‘promptly require that LBA’ recover the Deposit Payment for the benefit of the Plaintiffs implies that the effect of the Trivett Facility Agreement is such as to release NSL MP from any liability that it had to LBA by reason of the receipt of the Deposit Payment.  Given that NSL MP was not a party to the Trivett Facility Agreement, it is not clear how that could be so.  In any event, the pleading does not explain it. 

1. Also arguably implicit in the Plaintiffs’ case is that LBA’s rights under the Trivett Facility Agreement are less valuable than LBA’s right to recover the Deposit Payment from NSL MP.  This is not pleaded or particularised either which sits rather uneasily  with the various allegations in the pleadings as to backdating.  It only arises if the Trivett Facility Agreement is efficacious.  If it is efficacious, it validates the approach taken by Trivett’s solicitors Madgwicks in the response to the letter of demand from LBA sent on 17 November 2019.[36]  The essence of that response is that LBA’s inability to advance the balance of the funds up to the facility limit of $18,500,000 caused Trivett loss and damage which Trivett can raise by way of equitable set off in diminution or extinction of any claim by LBA for repayment.  Trivett’s entitlement to rely on such a set off implies that it was not a party to any untoward conduct of Mario and James Charisiou, NSL Group and NSL MP. In any event, the Plaintiffs would have to establish that the Deposit Payment was not accompanied by a similar promise by LBA to NSL MP and a like entitlement to raise a set off on the part of the latter and to plead the necessary material facts that would facilitate a plea of loss and damage occasioned in some way by the difference between the value to LBA (or in some way the Plaintiffs) of the right to recover the Deposit Payment and the right to recover the sum advanced under the Trivett Facility Agreement.  If the recipient of the Deposit Payment (presumably NSL MP) had a like entitlement, then there may be no difference between LBA’s rights under the Trivett Facility Agreement and any right to recover the Deposit Payment.  The case here is that somehow the Plaintiffs suffered loss and damage by reason of this conduct in a way which in not comprehensible from the pleading nor the written submissions. 

   [36]This may be that which constitutes reliance by the representatives of Trivett Property Partners Pty Ltd on the ‘backdated documents’ which is impeding and/or delaying the Plaintiffs and/or other creditors of LBA from recovering funds paid into the trust account; see particulars to paragraph 53S1.

1. If the Plaintiffs accept that Trivett can raise an equitable set off in diminution of any claim for repayment of the sums advanced under the Trivett Facility Agreement, then it must be the case that Trivett was not a party to the unconscionable conduct of the NSL Parties in bringing about the Trivett Facility Agreement.  If it was, it can hardly invoke equity in setting off any liability.

1. The NSL Parties submit therefore that the Plaintiffs’ claims do not have a real chance of success because the claim for loss and damage assumes in Trivett’s favour that it can rely on an equitable set off in extinction or diminution of any claim for repayment of the $2,970,000 but the claim against NSL Group and NSL MP rests on the proposition that the bringing about of the Trivett Facility Agreement is ‘unconscionable’ within the meaning of ss 20 and 21 of the ACL. If the conduct which brought about the Trivett Facility Agreement is unconscionable then the NSL Parties say that Trivett would not be able to rely on an equitable set off, which is destructive of the Plaintiffs’ loss and damage case because they can seek repayment under the Trivett Facility Agreement (because they acquired LBA’s rights under that agreement).

1. This does not necessarily follow.  It appears implicit in the Plaintiffs’ case that the ‘scheme’ allegedly set up by the NSL Parties, among others, to impede any attempts by the Plaintiffs to recover the losses sustained as a result of James Charisiou’s misdeeds, had as one of its elements the imposition of an innocent Trivett as a party assuming a liability to LBA. Although such a case would may face considerable obstacles it is a case which permits a finding of unconscionable conduct on the part of the NSL Parties but not Trivett, and thus would not be destructive of the Plaintiffs’ case in the sense submitted.

1. Overall, there are many significant matters embedded in the proposed new particulars of the loss and damage plea which are simply not grappled with or addressed.

Miscellaneous criticisms

1. The NSL Parties also draw attention to the Settlement Deed by which the Plaintiffs acquired any rights of LBA against inter alia NSL Group, NSL MP and Trivett in relation to the $2,970,000 paid by LBA into the trust account or arising in respect of the Trivett Facility Agreement.  They submit that the Plaintiffs have not suffered any ‘loss of opportunity to recover the Advanced Funds’ (of $2,970,000) at all because they now have the same rights that LBA had to recover the previous payment under the Trivett Facility Agreement, which are the rights both before and after the unconscionable conduct.

1. This point too has merit.  The Plaintiffs make no reference to the Settlement Deed in the Fourth FASOC and submit that it cannot be looked at in respect of the strike out of the pleadings because it is not referred to in the pleadings.  Whilst that may be so, the Fourth FASOC is deficient in any respect on its face.  The Plaintiffs’ case appears to be that it suffered lost opportunity damages because of the loss of the opportunity to recover the funds that LBA had paid to NSL MP apparently because LBA later entered into the Trivett Facility Agreement.  As a result of the Settlement Deed however, the Plaintiffs have the same rights that LBA had against NSL MP by reason of the Deposit Payment, and against Trivett under the Trivett Facility Agreement.  In those circumstances, it is not obvious what opportunity the Plaintiffs lost, because they have obtained exactly that which LBA had; certainly, the pleading does not make it clear.  None of this has been alleged with sufficient clarity and not much is to be gained by speculating.

Disposition

1. The proposed Fourth FASOC falls short of pleading a readily intelligible and viable claim against the NSL Parties.  I would not therefore grant the Plaintiffs leave to file and serve the Fourth FASOC. 

1. The Third FASOC will also be struck out as foreshadowed.  The Third FASOC is deficient for the reasons set out above in relation to the Fourth FASOC in respect of those same paragraphs that appear in the Third FASOC.

1. There are a number of impediments to the claims sought to be advanced against the NSL Parties, particularly those that relate to any claim against NSL MP.  The loss and damage claim and the causation issues involved are also problematic. The difficulties that the Plaintiffs have had to date in formulating the claims against the NSL Parties gives rise to doubt that they will be able to do so going forward.  Accordingly, the Plaintiffs will not be given a general leave to replead. 

1. I do not propose to go further and dismiss the claims against the NSL Parties.  I am not yet satisfied that the point has been reached that it can be said that on the facts as known there is no reasonably arguable claim available against the NSL Parties.  The manner in which the Third FASOC and the proposed Fourth FASOC are drafted make it difficult to isolate the case that the Plaintiffs seek to make with sufficient precision so as to conclude that there is no available case open with sufficient prospects of success, such that summary dismissal is appropriate at this stage.

1. The case as apparently sought to be made involves nuanced and complicated questions of the attribution of conduct of persons to corporate entities where the state of mind of alleged wrongdoers at least in part was obtained in a capacity other than as a director of the proposed defendants.  Difficult questions of causation and loss and damage arise.  The many issues which arise have not really been dealt with at all to date, or at least to any sufficient extent.

1. The present and proposed pleadings involve rolled up allegations pleaded in bare conclusionary terms with buried particulars, some relevant and some not.  Key matters of material fact identifying with precision the conduct actually undertaken (in contrast to the Plaintiffs’ characterisation of the conduct) by identified natural persons  on behalf of the relevant corporate entities, are not pleaded, and the Plaintiffs seek to rely on other matters which are not pleaded but have been asserted in submissions.  

1. If the Plaintiffs wish to prosecute a claim against the NSL Parties, they will have to satisfy the Court that there is a sound basis to support such claims and plead sufficient material allegations of fact in accordance with proper rules of pleading which establishes a viable cause of action against one or both of the NSL Parties.[37]  The claims advanced to date fall short.

   [37]As was the case in Environinvest v Pescott [2011] VSC 325.

1. The Plaintiffs’ claims against the tenth and eleventh defendants contained in paragraphs 53S5 to 53S11 of the Third FASOC will be struck out. The Plaintiffs’ application for leave to file the proposed Fourth FASOC is refused.  The tenth and eleventh defendants’ application for the hearing of a separate question is no longer relevant and will be struck out.  The Plaintiffs’ claims against the tenth and eleventh defendants will be stayed until further order.  If the Plaintiffs wish to proceed with a claim against the tenth and eleventh defendants (or any one of them) they shall have to obtain leave to file and serve an amended statement of claim within 60 days or such further period as is ordered.  If they do not obtain such leave, the claims against the tenth and eleventh defendants will be permanently stayed and the NSL Parties will be entitled to their costs of the proceeding.  The tenth and eleventh defendants’ application is otherwise dismissed.  I will hear the parties as to costs but my preliminary view is that the tenth and eleventh defendants are entitled to the standard costs of and incidental to the Strike Out and Dismissal Summons save for those costs incurred in relation to the application for a separate question which should be reserved.

---

SCHEDULE OF PARTIES

JB ASSET MANAGEMENT		First Plaintiff
KB KOOKMIN BANK (ALSO KNOWN AS KOOKMIN BANK)		Second Plaintiff
- and -
LBA CAPITAL PTY LTD (ACN 628 451 267)		First Defendant
LIVING BRIGHT AUSTRALIA PTY LTD (ACN 625 648 606)		Second Defendant
SDA STUDIOS PTY LTD (ACN 635 171 774)		Third Defendant
MT ALEXANDER ROAD (MELB) PTY LTD (ACN 635 120 660)		Fourth Defendant
DEMETRIOS CHARISIOU (ALSO KNOWN AS JAMES CHARISIOU)		Fifth Defendant
MATTHEW BARTALOTTA		Sixth Defendant
HENRY EL CHEIKH		Seventh Defendant
MARIO CHARISIOU (ALSO KNOWN AS MARIO IOANNOU)		Eighth Defendant
RAFFAELE AIELLO		Ninth Defendant
NEXT STAGE LIVING GROUP PTY LTD (ACN 629 888 240)	Tenth Defendant
NEXT STAGE LIVING MOONEE PONDS PTY LTD (ACN 629 891 765)	Eleventh Defendant