John Irving As Liquidator Of Mawson KLM Holdings P/L (in Liq) & Anor v Starmaker (No 51) P/L - [2005] SASC 309

SUPREME COURT OF SOUTH AUSTRALIA
(Appeal from a Master: Civil)
JOHN IRVING AS LIQUIDATOR OF MAWSON KLM HOLDINGS P/L (IN LIQ) & ANOR v STARMAKER (NO 51) P/L
Judgment of The Honourable Justice Layton
17 August 2005
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PRACTICE UNDER RULES OF COURT - PLEADINGS
Appeal against decision of a Master dismissing an application to strike out paragraphs in a statement of claim - particulars ordered - consideration of Supreme Court Rules 1987 (SA) - consideration of material facts and further material facts - whether pleading limited to statutory language sufficient - appellant by way of reopening submitted additional arguments as to why the pleadings should be struck out - whether pleadings inconsistent with pleadings in a related action which was subsequently dismissed for want of prosecution - consideration of r 46.09 and whether the rule applies to inconsistency with regards to related actions - orders made - appeal allowed.
Supreme Court Rules 1987 (SA) r 46A and r 46; Corporations Act 2001 (Cth) s 588 FB(1), s 588FE(3), s 588FE(6) and s 588FD, referred to.
Arthur Young & Anor v Tieco International & Ors (1995) 182 LSJS 367; Williams v Zupps Motors Pty Ltd [1990] 2 Qd R 493; Bruce v Odham's Press Ltd [1936] 1 KB 697; Darbyshire v Leigh [1896] 1 QB 554; Re Rica Gold Washing Co (1879) 11 Ch D 701; Ritz Hotel Ltd v Charles of the Ritz Ltd (No.20) (1988) 14 NSWLR 124; Rubenstein v Truth & Sportsman Ltd [1960] VR 473; Marini v MLH Insurance Brokers Pty Ltd & Ors [2004] SASC 400, considered.

WORDS AND PHRASES CONSIDERED/DEFINED
"material facts"

JOHN IRVING AS LIQUIDATOR OF MAWSON KLM HOLDINGS P/L (IN LIQ) & ANOR v STARMAKER (NO 51) P/L
[2005] SASC 309

LAYTON J: This appeal raises issues of pleadings in the context of complex litigation between the parties. The major concern is whether pleadings should be struck out as a consequence of lack of pleading material facts, or whether an order should be made for the supply of further material facts.
There have been many applications made in this action and this appeal is but one. In summary Mawson KLM Holdings Pty Ltd (in liq) (ACN 072 793 603) (“Mawson”) was wound up on the application of Starmaker (No51) Pty Ltd (“Starmaker”) following the non-payment of taxed costs ordered in its favour in another action. Subsequently, this action was instituted by the Liquidator of Mawson against Starmaker seeking declarations that three transactions between Mawson and Starmaker, namely a loan, an option agreement and a joint venture agreement, be declared as either unfair, uncommercial or an insolvent transaction under the Corporations Law and remedies should be granted by the Court. Starmaker is defending the action by denying the allegations and also making alternative contentions of illegality, statutory non-compliance and set-off.
This dispute as to the pleadings is a matter which was argued before me in two stages which I will refer to as Part A and Part B.
Part A was an appeal by Starmaker against a decision of a Master, which I heard on 25 May 2005 and upon which I reserved my decision.
Part B occurred on 29 July 2005 after the first stage had been completed; when Counsel for Starmaker sought to put an additional argument by way of a reopening of the argument as to why the pleadings of the respondents were defective and should be struck out.[1] This matter was raised for the first time on 30 June 2005 in the course of Starmaker making submissions in Action No 1361 of 1997 between Starmaker and Mawson, being two of the parties in this action. Counsel for the respondents indicated that the respondents did not oppose the re-opening and I gave directions for the filing of outlines of argument by the parties.
[1] Although subsequently a Third Amended Statement of Claim was filed by the plaintiff on 6 April 2005, this appeal as to the pleadings deals with the judgment of His Honour Judge Bowen Pain on the Second Amended Statement of Claim only.
In these reasons for decision, I will first consider the appeal and then the additional argument on the reopening.
PART A: APPEAL AGAINST DECISION OF MASTER
The appeal concerns the decision of a Master to dismiss paragraph 2 of a Notice for Specific Directions taken out by Starmaker. The application of Starmaker had sought certain particulars of the Second Amended Statement of Claim (“the Statement of Claim”) be struck out. The Master had dismissed the application save and except particulars were ordered as to paragraph 16 of the Statement of Claim. The Master also made an order that the defendant pay 75% of the plaintiff’s costs to be taxed or agreed. The appeal is in respect of that part of the application which was dismissed as well as the order as to costs.
This action was commenced on 15 September 2000 and therefore Rule 46A of the Supreme Court Rules 1987 (SA) applies to the pleadings to the exclusion of Rules 46 and 47 (Rule 46A.01(2)), noting at the same time that this is qualified by Rule 46A.16 which provides:
46A.16 Except insofar as they are inconsistent with Rule 46A, Rules 46.05(2), 46.06, 46.07, 46.09, 46.11, 46.12(4)(a) and (ab), 46.18, 46.22, 47.02, 47.03, 47.06, 47.07 and 47.08 are to apply to pleadings governed by Rule 46A.
The paragraphs sought to be struck out by Starmaker are paragraphs 18.1, 19.2, 19.3, 20.2 and 20.3 of the Statement of Claim.
Relevant rules and pleading requirements
Counsel for Starmaker argue that the paragraphs are deficient in that they do not plead the “material facts” as required pursuant to Rule 46A.02. The phrase “material facts” is not defined in the Rules. It has been variously described in earlier cases as all the facts upon which a cause of action depends[2] and the facts stated must constitute in themselves a complete cause of action.[3]
[2] Darbyshire v Leigh [1896] 1 QB 554; Re Rica Gold Washing Co (1879) 11 Ch D 701.
[3] Bruce v Odham’s Press Ltd [1936] 1 KB 697; see also Ritz Hotel Ltd v Charles of the Ritz Ltd (No. 20) (1988) 14 NSWLR 124 where alternative claims for relief are claimed, the facts supporting each alternative must be separately stated.
The proposition that the pleadings must make out a cause of action, was espoused in the early authority of Bruce v Odhams Press Ltd,[4] where the detail to make out a cause of action was that which was necessary to ensure the other side is not left guessing what claim is being made against them. In Bruce, the plaintiff brought an action for libel against the defendant claiming that references in a newspaper article to the words ‘an Englishwoman,’ ‘she,’ and ‘her’ were a reference to the plaintiff. The court held that ‘the material facts on which the plaintiff must rely for her claim …necessarily include the facts and matters from which it is to be inferred that the words were published of the plaintiff.’[5] The facts and matters were those material facts which the plaintiff had to allege to show that she had a cause of action against the defendants.
[4] [1936] 1 KB 697.
[5] Ibid at p. 706.
Counsel for Starmaker complains that it is entitled to know the material facts to be proven at trial but that this does not go as far as pleading evidence. The case of Rubenstein v Truth & Sportsman Ltd[6] was cited. In this case a single Judge of the Supreme Court of Victoria considered that the material facts in an allegation of defamation against a newspaper were not pleaded in the statement of claim. In striking out certain paragraphs in the pleadings which failed to state the material facts, the Court held that:
[t]o deal in further detail only with the allegation that material facts are not stated, it is my opinion that paragraph 6, containing as it does merely the bald assertion that the defendant…directed or authorized the other two defendants to print and publish the alleged libels, offends against the fundamental rule that every pleading shall contain, albeit in summary form, a statement of the material facts, as distinct from the evidence thereof, upon which the party pleading relies for his claim.
[6] [1960] VR 473.
Assistance as to the meaning of “material facts” is also contained in the Rules themselves.
Rule 46A.03 which specifies the requirements for a Statement of Claim in respect of non-personal injuries provides:
46A.03 In an action where damages for personal injuries are not claimed the Statement of Claim must plead, but plead only:
(a)the material facts relied upon to constitute any cause of action, or grounds for an extension of time or other relief sought;
(b)such further material facts as are necessary to give other parties fair notice of the case which they will have to answer;
Rule 46A.09(1) specifies:
(1) No order is to be made that any further material facts are to be pleaded other than where the material facts pleaded do not disclose facts sufficient to give the other parties fair notice of the case which they will have to meet and the party seeking them would be significantly prejudiced in the conduct of its case by not having them (The intent of Rule 46A is that the parties should include all material facts in their pleadings as initially filed so that there is no unfairness to another party by any lack of particularity and if they have not done so the trial Judge may refuse to allow that party to present a case which is outside the terms of its pleading.)
The rules governing pleadings were interpreted in the case of Marini v MLH Insurance Brokers Pty Ltd & Ors[7], which was decided under the pleadings rules for actions commenced after 3 June 2000. Besanko J upheld a challenge to a statement of claim that paragraphs which do not set out further material facts so as to give the other side fair notice of the case to answer, may be the subject of an order that further material facts be pleaded. In determining the meaning of Rules 46A.03(a) and (b), Besanko J,[8] considered the effect of Rule 46A and observed:
…In Williams v Australian Telecommunications Commission (1988) 52 SASR 215 King CJ referred to the fundamental purpose of pleadings as one of providing a structure for the action designed to promote a just outcome. He referred to the two basic functions of pleadings the second of which is to give the parties "fair notice of the case to be made against them at trial thereby minimising the risk of injustice resulting from surprise" (at 216). This is the concept embodied, or at least partly embodied, in r 46A.03(b).
[7] [2004] SASC 400.
[8] [2004] SASC 400 [13].
In paragraph 14 of his reasons Besanko J distinguished between the requirements of Rule 46A.03(a) and Rule 46A.03(b), being the difference between material facts relied on to constitute “any cause of action” and “further material facts” necessary to give parties fair notice of the case they will be required to answer and to prevent prejudice. His Honour said:
Rule 46A.03(a) deals with those material facts which are essential to the cause of action. In other words, without the pleading of those facts it is clear the action will fail. A failure to plead one or more such facts will ordinarily lead to the conclusion that the Statement of Claim discloses no reasonable cause of action and should be struck out. By contrast, r 46A.03(b) deals with those facts which in fairness should be pleaded in order to prevent surprise and therefore delay at trial. It is impossible to generalise about the nature of such facts because it will depend on the circumstances of the particular case.[9]
[9] Ibid [14].
In relation to the power and exercise of the discretion of a court to strike out pleadings and when that is appropriate, Besanko J concluded at paras 18 to 20:
… a court has the power to strike out a pleading or part of a pleading which does not comply with r 46A.03(b). However, in my opinion the court should not ordinarily exercise that power where the real complaint is what under the 1947 Rules would be characterised as a failure to provide particulars. In Rupcic v A W Baulderstone Pty Ltd (1987) 46 SASR 99 Cox J described the difference between pleadings and particulars.
…
In my opinion, where the failure to comply with r 46A.03(b) partakes of what was previously considered a failure to provide adequate particulars, the appropriate application is an application under r 46A.09 rather than an application to strike out. Otherwise a party could avoid the strictures of r 46A.09 by issuing an application to strike out. Those strictures include the need to show not only that fair notice is not given but also that the applicant would be significantly prejudiced in the conduct of his case by not having the further material facts.
I think the approach I have suggested is the approach I should take having regard to the terms of the relevant Rules. There is a discretion not to strike out a pleading or part of a pleading and it is a proper exercise of that discretion not to strike out if the deficiency is a lack of further material facts in the sense referred to in r 46A.09. The approach I have suggested might be justified by an alternative route. Rule 46.18 only applies to pleadings governed by r 46A to the extent that it is not inconsistent with r 46A.16. In my opinion, it is inconsistent with the provisions of r 46A and, in particular, r 46A.09, to strike out a pleading or part of a pleading because of a lack of further material facts in the sense referred to in r 46A.09.
In summary, the above Rules and their interpretation enunciated by Besanko J, indicate that when considering the application of Rules 46.02 and 46A.03(a) and (b) in combination with Rule 46A.09, the approach to be adopted and the orders which may be granted, will be dependant upon the characterisation of the facts which are sought.
This requires a court to consider two categories;
·whether the alleged failure to provide “material facts” is a failure to provide the facts to constitute a cause of action or other relief sought (46A.03(a)), or
·whether the alleged failure is a failure to provide “further material facts” which are “necessary” to give the parties “fair notice” of the case to answer (46.03(b)).
The dividing line between the two categories may at times be fine, but the consequences of their non-provision are significantly different. The remedy in relation to a successful claim under the first category is that if “material facts” are not pleaded, their absence may result in the pleading being struck out. However, the remedy in relation to the second category of “further material facts” if not pleaded, is governed by Rule 46A.09 and is different. In those circumstances it would be inappropriate to strike out a pleading or part of a pleading; instead the court is required to consider whether an order for further material facts should be made if it is satisfied that the prerequisites to that Rule are fulfilled. Namely, the facts which are pleaded do not disclose sufficient facts to give the other party fair notice of the case that it will be required to meet and further, that the party would be significantly prejudiced by reason of a failure to provide them.
Background
This action has a considerable history which is neither relevant nor desirable to be recited, save the following basic chronology.
On 15 September 2000 this action was commenced by John Irving as Liquidator of Mawson KLM Holdings Pty Ltd (in Liquidation) (“Irving”) and later in 2003 Mawson was added as a plaintiff. I will refer to both parties as the respondents.
A defence was filed on 15 November 2000 by Starmaker and a Settlement Conference was held on 15 February 2001, but settlement was not achieved.
On 3 September 2001 an Amended Application and Statement of Claim was filed, which sought new ancillary claims.
On 28 February 2002, Starmaker filed a Further Amended Defence.
An application was taken out by the Starmaker on 12 June 2002 to revoke the order granting leave to the respondents to file an Amended Statement of Claim which had sought the new claims. This matter came on for hearing before a master who dismissed the application. An appeal from the Master in turn was also unsuccessful before a judge and reasons for dismissal of the appeal were delivered on 13 December 2002.
On 5 March 2003, the Second Amended Application and Statement of Claim was filed which inter alia added Mawson.
On 3 April 2003 a Fourth Amended Defence was filed.
On 12 May 2003 an Amended Reply was filed.
Almost two years later on 4 March 2005, this Notice for Specific Directions was taken out, although other issues relating to one or other of the parties were the subject of litigation in the interim.
In relation to the paragraphs which are sought to be struck out, I note paragraphs 18.1, 19.2 and 19.3 of the Second Amended Statement of Claim in substance has changed little from the earlier one filed on 3 September 2001 which then were paragraphs 10.1, 18.1 and 18.2. The current paragraphs 20.2 and 20.3 of the Statement of Claim are the new pleadings. I also note that the Fourth Amended Defence has pleaded to each of the paragraphs in significant detail, denying the facts alleged against it.
The Application and Statement of Claim, in essence seek that three transactions namely, a loan, an Option Agreement and a Joint Venture Agreement be declared voidable transactions under sections 588 FB(1), 588 FE(3) and 588 FE(6) of the Corporations Act 2001 (Cth) (“the Corporations Law”). Further, that the Court make orders for relief by ordering the payment of monies to the plaintiff by the defendant pursuant to section 588 FF of the Corporations Law.
The particular paragraphs sought to be struck out are as follows:
16.A reasonable rate of interest on the loan at the time the loan was made was 10.5% per annum or thereabouts.
18.1an unfair loan pursuant to Section 588FD of the Corporations Law (“the Law”) because the interest on the loan was extortionate;
19.2an uncommercial transaction pursuant to Section 588FB of the Law being a transaction that a reasonable person in Mawson’s circumstances would not have entered into having regard to the benefits and detriment to Mawson and the benefit to Starmaker of entering into the transaction.
19.3an insolvent transaction pursuant to Section 588FC of the Law, being an uncommercial transaction and Mawson was insolvent at the time when the transaction was entered into.
20.2an uncommercial transaction pursuant to Section 588FB of the Law being a transaction that a reasonable person in Mawson’s circumstances would not have entered into having regard to the benefits and detriment to Mawson and the benefit to Starmaker of entering into the transaction;
20.3an insolvent transaction pursuant to Section 588FC of the Law, being an uncommercial transaction and Mawson was insolvent at the time when the transaction was entered into.
Paragraph 18.1
As previously indicated, the Master ordered that particulars be provided as to paragraph 16 as the current pleading omitted reference to the Reserve Bank when quoting the rate of 10.5% (there had previously been a reference to the Reserve Bank rate at paragraph 15 of the earlier Statement of Claim).
After hearing argument, the Master concluded in relation to paragraph 18.1, which asserted that the loan was an “unfair loan” within the meaning of section 588 FD “because interest is extortionate”, that the particularity ordered to be given by him to paragraph 16, would provide the material facts to support paragraph 18.1.
Starmaker argued that the particularity given to paragraph 16 did not in fact provide the material facts required in respect of paragraph 18.1. After referring to the meaning of the word “extortionate” as being “grossly excessive”, Starmaker argued that if the respondents were thereby asserting that any rate of interest over and above that set by the Reserve Bank was extortionate then that should be pleaded as a material fact. Alternatively, if the respondents relied on some other material fact or facts to support the assertion that the loan was extortionate, then they should be required to plead those material facts. It was argued that a failure to plead such facts would significantly prejudice Starmaker.

In considering this argument, I note that no challenge has been made to paragraph 17 which asserts that “the interest charged by Starmaker to Mawson in relation to the loan was extortionate” although that paragraph is of direct relevance to the challenged pleading in paragraph 18.1.
The pleading as it stands at the present time specifically asserts that the loan is unfair because the interest on the loan was extortionate. That is the material fact which is alleged to support the claim of unfairness. The respondents have therefore confined their pleadings to the extortionate nature of the “interest rate” alone and to no other factor. Further, after amendment is made as ordered by the Master it will refer only to the alleged rate of interest charged by the Reserve Bank. However, it is important to note that the respondents have simply asserted that a 10.5% interest rate is “reasonable”. The pleading does not state what percentage interest rate the plaintiff alleges would go not only beyond what is “reasonable” but becomes an interest rate which is “extortionate” within the meaning of section 588 FD.
The case of Arthur Young and Anor v Tieco International and Ors[10] considered a similar line of argument in relation to an alleged lack of material facts. Lander J considered an appeal against the decision of a master who granted leave to the defendants to amend a counter claim. The defendants claimed that the plaintiff Arthur Young did not ‘properly discharge’ its obligation as financial advisers which resulted in loss to the defendant. The plaintiffs alleged that the counterclaim failed to give material facts to the meaning of “properly” which in effect gave Arthur Young no clue as to what was “proper” or what was “improper” in their advice to Tieco. Lander J considered:
in that paragraph [17.1(b)] there is again the alternative pleas of failed to do something at all, or failed properly to do something, and then twenty instances of that failure are identified. In none of them does the pleader indicate what would have been a proper discharge of the obligation, and how it is that Arthur Young failed to meet that proper discharge, which allows it to be said that something was not properly taken into account.[11]
[10] (1995) 182 LSJS 367.
[11] Ibid at p 381.
This is a similar circumstance to this case. The Statement of Claim asserts that the interest rate on the loan from Starmaker was “extortionate.” Starmaker contends it could be caught by surprise at trial on the pleadings as they exist now in paragraphs 16 and 18.1. I agree that neither paragraphs 16 or 18.1 specify why or in what manner the unspecified interest rate of Starmaker is alleged to be extortionate.
Counsel for the respondents submitted that “sufficient particulars to comply with R46A.09 have been provided in the pleading” and referred to paragraphs 4, 5, 6, 7, 15 and 16 of the Statement of Claim.
A reading of the paragraphs referred to by the respondents reveals a recitation of the background facts; a brief description of the transactions; a reference to the amount of the loan and the amount of “the interest and fees” chargeable on the loan; a reference to the later sale of the property and the amount of the sale; and the reference to the 10.5% interest rate. There is no fact pleaded which indicates the facts which form the basis of the plaintiff’s claim that the interest rate, distinguished from “the fees”, is asserted to be “extortionate”. At best it is a matter of surmise and it simply repeats the adjective of “extortionate” used in the Corporations Law in s 588 FD. With respect to the conclusion of the Master, I do not accept that the particularity ordered to be given by him to paragraph 16 would provide the material facts to support paragraph 18.1.
Counsel for the respondents confirmed from the bar table that it was the contention of the respondents that their case was confined to the argument that the Reserve Bank interest rate of 10.5% was the appropriate rate and was the reference point from which it sought to argue that the rate of interest charged by Starmaker was “extortionate”. In particular, the respondents did not seek to argue any other commercial market place rates as being the reference point for the characterisation of the interest rate of Starmaker as being “extortionate”. At the present time the pleadings do not expressly confine the respondents contention to the Reserve Bank interest rate of 10.5% .
In my view, it is not a sufficient pleading to merely repeat the adjective of the Corporations Law in the Statement of Claim without indicating in the material facts as to why the rate of interest in this case is alleged to be “extortionate”. The deficiency in the pleading falls within the second category as being “further material facts” required to be disclosed to give sufficient facts to enable Starmaker to have fair notice of the case that it will be required to meet and it would be significantly prejudiced by reason of a failure to provide them.
It is not enough to have the indication given from the bar table. As helpful as that has been, this contention should be set out in the pleadings. Further it is not enough to simply plead what it asserts is a “reasonable” rate of interest. I therefore consider that the respondents should provide particularity in paragraphs 16, 17 and 18.1 as to the rate of the interest charged by Starmaker and the basis on which they claim that the interest was extortionate.
Paragraph 19.2
This pleading simply restates the provisions of section 588FB naming the plaintiff and the defendant respectively and asserting “benefits and detriment” to the plaintiff and the “benefit” to the defendant.
In refusing to order particulars in respect of paragraph 19.2, the Master stated that the terms of the option agreement were:
…further expanded in paragraphs 8 and 9 of the statement of claim. Again, if the pleading is read as a whole, the material facts are pleaded in the earlier paragraphs. Paragraph 19.2 is merely setting out the consequences of the application of s 588FB of the law to those facts. There is therefore no need for striking out or ordering particularity in relation to that pleading.
Counsel for Starmaker challenged this finding by the Master. Counsel for the respondents, in reply, asserted that in addition to the paragraphs referred to by the Master, paragraphs 4 to 6 and 10 to 15 were clear and that paragraph 19.2 did not lack particularity. This is essentially an argument by the respondents that all of the paragraphs of the Statement of Claim when read together enable Starmaker to know what are the benefits and detriments asserted in respect of each party, and there is no need to, in effect, spell them out again in paragraph 19.2.
In my opinion there is no clarification as to what the respondents claim are the “benefits” or “detriments” of each party by reason of entering the Option Agreement. Similarly there is no clarification as to whether the alleged benefits or detriments are confined to the precise terms of the pleadings in other paragraphs of the Statement of Claim or whether there are other benefits or detriments not specified.
The terms “benefit” and “detriment” are a conclusion of fact or a combination of fact and law and are the alleged consequence of entering into the Option Agreement. The mere assertion of their existence does not set out the facts by which the plaintiff claims that either party obtained a “benefit” or suffered a “detriment” by entering into that transaction.
It is relevant to this argument to note that Starmaker in its pleadings at paragraph 8.2, denies the allegations in paragraph 19.2 of the Statement of Claim and referred to paragraph 7 of its Defence. Subparagraph 7.6 of the Defence appears to be the most applicable response to paragraph 19.2 of the Statement of Claim. Paragraph 7.6.1 sets out a number of “benefits” which the defendant asserts in relation to the plaintiff and in paragraph 7.6.2, the defendant asserts that there was no detriment to the plaintiff.
The Reply filed by the respondents simply joins issue on those assertions and proffers nothing positive in response.
Having regard to the state of the pleadings, no assistance can be gleaned from either the Statement of Claim or the Reply as to what are the “benefits” or the “detriments” which the respondents assert were the consequence of the parties entering the Option Agreement. Starmaker would be guessing as to what was claimed by the respondents as being “detriment” suffered by Mawson. It also would be guessing as to what the respondents alleged was the “benefit” derived by Starmaker. Starmaker could be disadvantaged to a lesser extent by the lack of material facts as to the “benefits” which the respondents allege Starmaker obtained in entering into the Option Agreement. As could be expected, these are more likely to be articulated by Starmaker, as indeed they have been in the Defence. The respondents join issue on those alleged benefits in their Reply.
In my view the deficiency in the pleading falls within the second category as being “further material facts” required to be disclosed to give sufficient facts to enable Starmaker to have fair notice of the case that it will be required to meet. It would be significantly prejudiced by reason of a failure to provide them. It is material for Starmaker to know the basis upon which it is claimed that the Option Agreement was uncommercial and it would be significantly prejudiced in the conduct of its defence in not knowing what is alleged to be the “detriment” to Mawson and the “benefit” to Starmaker. It is not necessary in light of the Defence and the Reply, for the respondents to provide particulars as to the “benefits” to Mawson.
Paragraph 19.3
This paragraph alleges an insolvent transaction and asserts that ‘Mawson was insolvent’ at the time when the transaction was entered into.
In the Fourth Amended Defence, the Option Agreement is not particularly referred to in the context of alleged insolvency, although insolvency is mentioned in paragraph 7.4.25, 7.5.2, 7.7.3 and 7.7.4. Paragraphs 7.7.3 and 7.7.4 were previously the subject of argument before the Master in the context of the Reply to those paragraphs, but this is not pursued in the Appeal.
Starmaker argues that insolvency is a conclusion and a matter of law and contends that the pleading should set out the material facts upon which it is asserted that the company was insolvent at the time of the transaction.
Whilst insolvency is a conclusion, the legal principles governing insolvency are well-known and the issue is whether a company, at a particular time, is unable to pay its debts as and when they fall due. The assertion in the pleading is that the Option Agreement was an “insolvent transaction” and the material fact by which that is asserted is that Mawson was insolvent at the time when the Option Agreement was entered into.
The question of whether a company is or is not in such a financial state at a certain date is often the subject of significant and contradictory evidence and it is a matter of evidence in each case. In the context of these pleadings it is not a matter requiring further material facts in order to enable Starmaker to have fair notice of the case it will be required to answer. It is not, in my opinion, a matter which would fall within the second category of Rule 46A.09. Essentially, what Starmaker is now seeking is the underlying accountancy evidence upon which the respondents assert that Mawson was insolvent at the time when it entered into the Option Agreement.
I agree with the reasoning of the Master in refusing to either strike out the paragraph or order particularity when he said:
..What the defendant is seeking is the evidence by which the material fact is proved. Presumably there will be a liquidator’s report as to solvency with supporting documentation. If this does not satisfy the Court then the liquidator’s claim will fail on that basis. There is, however, no basis for me to make an order as sought.
I therefore refuse to strike out or order particulars in relation to this paragraph.
Paragraph 20.2
In my view the reasoning set out above with regard to paragraph 19.2 is applicable to the Joint Venture Agreement referred to in paragraph 20.2 and I consider that similar particularity is required.
Paragraph 20.3
In my view the reasoning set out above with regard to paragraph 19.3, is applicable to the Joint Venture Agreement referred to in paragraph 20.3 and I consider that there is no ground for either ordering that the paragraph be struck out or ordering particulars.
Orders on Appeal
I consider that the appeal should be allowed but that it should be limited to the orders which I set out at the end of this judgment.
PART B: ADDITIONAL GROUND TO STRIKE OUT PLEADINGS
The additional argument of Starmaker as to why certain parts of the pleadings of the respondents should be struck out is a relatively short point. Starmaker claims that the pleading by the respondents as to the Joint Venture Agreement in this action is inconsistent with pleadings by Mawson in Action No 2227 of 1996 in respect of the same Joint Venture Agreement.
In Action No 2227 of 1996, proceedings were taken by Mawson against Starmaker and also the Registrar General of South Australia. Mawson sought the following orders against Starmaker:
11.1   an order that Starmaker direct Mellors to pay the signing fee to the plaintiff if it is still retained by them; or alternatively, if it is not so retained, payment of the signing fee;
11.2   payment of the plaintiff’s share of profit;
11.3   payment of interest upon the signing fee and the plaintiff’s share of profit;
11.4   costs
The paragraphs of the Statement of Claim in action No 2227 of 1996 which Starmaker alleges are inconsistent with the present proceedings are as follows:
6.By agreement dated 1 November 1996 between the plaintiff and Starmaker (the “Joint Venture Agreement”) the parties agreed as follows:-
6.1     to associate themselves as joint venturers in relation to the sale of the land (Clause 2(a));
6.2     that subject to Starmaker being repaid $1,470,000.00 (the “minimum amount”) the plaintiff was entitled to the benefit of certain land described in the Joint Venture Agreement as “divided land” (Clause 2(a)(ii));
6.3     that upon the sale of the land described in the Joint Venture Agreement as “the remaining land” the net proceeds of such sale shall be applied:-
6.3.1.firstly towards the costs of sale;
6.3.2.secondly the minimum amount shall be repaid to Starmaker;
6.3.3thirdly the surplus (if any) shall be divided equally between the plaintiff and Starmaker;
6.4     that the settlement date referred to in the agreement being annexure “MA1” to the Option Agreement (the “Land Agreement”) be extended until 4 December 1996 (Clause 4(a));
6.5     that contemporaneously with the execution of the Joint Venture Agreement the plaintiff shall deliver to Starmaker a signed Memorandum of Transfer of the Land (the “Transfer”) (Clause 4(b));
6.6     that if the plaintiff sells the remaining land for an amount not less than the minimum amount with settlement occurring on or before 4 December 1996 the Land Agreement shall be terminated;
6.7     that if the remaining land is not sold and settled before 4 December 1996 Starmaker shall be entitled without further notice to sign, stamp and register the Transfer.
8.On 5 November 1996 the plaintiff through its sole director, Keith Bowling, and Starmaker through its agent, Donald Brownlie Flemming orally varied the Joint Venture Agreement as follows:
8.1the plaintiff no longer retained the divided land;
8.2     the whole of the land would be sold to Limanto Pty Ltd ACN 068 134 789 (“Limanto”) for the sum of $1,850,000.00;
8.3     Starmaker would pay the plaintiff the sum of $200,000.00 (the “plaintiff’s profit share”) at 8.30am on 6 November 1996 on account of and in full satisfaction for the plaintiff’s entitlement to profit from the sale of the land to Limanto;
8.4     the fee of $50,000.00 (the “signing fee”) payable by Limanto upon the signing of the contract would be paid to the plaintiff;
8.5     that upon settlement of the contract by Limanto, Starmaker would receive and retain the entire sale proceeds.
(the above terms being hereinafter called the “Varied Joint Venture Agreement”).
9.     In breach of the Varied Joint Venture Agreement Starmaker:-
9.1     on 6 November 1996 caused and procured Limanto to pay the signing fee to the trust account of Mellors and not to the plaintiff;
9.2     failed and refused to pay the plaintiff’s profit share to the plaintiff either when due or at all;
9.3     on 12 November 1996 signed and stamped the Transfer and lodged the Transfer for registration with the second defendant.
In essence, the argument of Starmaker is that in Action No 2227 of 1996, in respect of the Joint Venture Agreement Mawson pleaded an oral variation to that agreement dated 5 November 1996 whereby Starmaker would pay Mawson the sum of $250,000 and Starmaker would receive and retain the entire sale proceeds over and above that sum. By contrast, in this action, Mawson, in the statement of claim pleads the existence of the Joint Venture Agreement dated 1 November 1996 but does not refer to any oral variation to that Agreement.
Starmaker further argues that the relief claimed in Action No 2227 of 1996 is completely different from that which is being sought in this action.
In reply, the respondents assert that there is no inconsistency between the pleading in the two actions as the oral variation of 5 November 1996 namely, to the effect that the whole of the land be sold to Limanto for the sum of $1,850,000 and that Starmaker would pay Mawson the sum of $200,000 on 6 November 1996, did not occur. It was submitted that it was common ground that the land was never sold to Limanto, Mawson was never paid any money and that Mawson’s rights reverted to its rights under the Joint Venture Agreement of 1 November 1996 as set out in paragraph 10 of the Amended Third Amended Statement of Claim, filed herein on 7 April 2005.
I am not persuaded by the somewhat robust submission by counsel for the respondents that there is no inconsistency between the pleadings in the two actions as to the Joint Venture Agreement by reason of the fact that the oral amendment was never implemented. Counsel for the respondents, in support of the contention that Starmaker is estopped from alleging that there exists an inconsistency between the pleadings in the two actions, submitted two further documents at the hearing before me. These consisted of a letter dated 26 February 2003 from Mr Townsend of Cowell Clarke to Mr Deller of Deller & Co Solicitors and another letter in reply dated 28 February 2003, from Deller & Co to Cowell Clarke. (Counsel for the respondents also referred me to an affidavit filed 29 July 2005 of Matthew D Deller with a Statement of Claim in Action No. 2227 of 1996 attached as exhibit “MDD1”). In my opinion, the documents provide no assistance to the Court to demonstrate the respondent’s submission that Starmaker is estopped from asserting an inconsistency in the pleadings. I reject the use of these documents for this purpose as the issue of inconsistency was not relevant to the parties at the point of correspondence between the parties. In any event, the content of the letters does not suggest that the argument put forward by the respondents as to an estoppel could be upheld.
Further, a variation to an agreement may take the form of a partial discharge of the obligations and the creation of new obligations. There are differing views as to whether an agreement to vary some terms of a contract constitutes a mere variation of the contract or acts as a discharge of the entire contract and the creation of another. This may depend on the intention of the parties.[12]
[12] See for example discussion in Thomsons, Laws of Australia, “Contracts” paras 7.7.74[74]-7.4.76[76]; Lexis Nexis Butterworths, Halsbury’s Laws of Australia “Contract Performance and Breach” paras [110-9085] at p 199,706 and Carter, JW and Harland, DJ, Contract Law in Australia 2002, Butterworths Australia at p. 92. paras [525-527].

The alleged breach of a variation of the agreement may have consequences for the overall agreement. It may give rise to different rights or obligations between the parties. Much would depend on the precise terms of the variation, the intention of the parties, the consideration for the variation and the effect of an alleged breach. One cannot just merely assume, as counsel for the respondents in this case argued before me, that the rights between the parties reverted to those that existed prior to the amendment.
More importantly, bearing in mind the significance of the Joint Venture Agreement to the arrangement between the parties in this action, it is highly relevant to plead the agreement in its entirety. To fail to mention any variation, particularly having regard to the significant nature of the variation pleaded in action No 2227 of 1996, is a failure to plead a highly material fact. Further, even if it were not regarded as a material fact, it would certainly fit within the category of further material facts which would be required to be pleaded in order to give notice to Starmaker of the case which it is required to meet.
Having concluded that there appears to be an inconsistency in the pleadings between the two actions, the next matter is what remedy is appropriate.
It was agreed between the parties before me that the previous action, Action No 2227 of 1996, was struck out for want of prosecution. This is notwithstanding that the written submissions of both parties referred to a “discontinuance”. Both parties have agreed that the submissions made by each of them in respect of discontinuance do not apply to the situation, as the action has been dismissed for want of prosecution.
At the centre of the argument as to remedy is Rule 46.09 which provides:
46.09 (1)A party shall not plead an allegation of fact or a new ground or claim inconsistent with his previous pleading.
(2) Subclause (1) hereof does not affect the right of a party to make allegations in the alternative or to amend or apply for leave to amend a pleading.
Each of the authorities which have been referred to by both parties before me concern the application of Rule 46.09 in relation to the same action and the various cases indicate that a second pleading must not contradict an earlier pleading by the same party in an action. None of the cases referred to deal with the situation of an inconsistent pleading in different actions.
Counsel for Starmaker argued that although none of the authorities advert to inconsistent pleadings between two different actions, nonetheless there was nothing within the Rule 46.09 which suggested that the Rule was limited to inconsistency within the same action.
It was agreed by counsel for Starmaker that it was not an abuse of process to bring a fresh action where an earlier one which expressed the same cause of action had been dismissed for want prosecution.[13] However, at the same time it was said that, if there was an inconsistency between the pleading of facts in relation to an action which had been dismissed and a subsequent action, that would mean there was an inconsistency for which the second action should have its inconsistent pleading dismissed.
[13] Williams v Zupps Motors Pty Ltd [1990] 2 Qd R 493.
I have difficulty accepting this to be the correct situation. This would mean that in a case where there may have been a flawed pleading in which wrong facts or remedies were asserted by a party and the matter was struck out for want of prosecution, the party could not subsequently rectify those deficiencies by pleading them differently in subsequent proceedings. It seems quite contrary to justice to prevent a party from correctly pleading the facts and its cause in the subsequent action.
In my view Rule 46.09 is concerned with inconsistent pleadings within an action. Those are the pleadings in relation to which the rule makes it mandatory not to have inconsistent pleadings. This makes sense, as an opposing party would not understand the case against him or her and it would be inappropriate for a court to have to decide a matter where the party in the action was taking two different positions.
This seems to be a markedly different situation to that in which a previous action has been discontinued and is no longer before the court. Whilst there may be issues raised in the course of the subsequent case as to the nature and cause of the inconsistency, which would be a vulnerability for a party who has been pleading inconsistently, I cannot see why the pleadings should be struck out by reason of inconsistency alone. I therefore reject Starmaker’s argument on this point.
Although I have rejected Starmaker’s primary argument, it does not mean that Starmaker in this matter should not have a remedy. There is considerable merit in the respondents being required to appropriately plead the facts and circumstances of the Joint Venture Agreement. I consider that Starmaker would be significantly prejudiced if further material facts of any variation which occurred to the Joint Venture Agreement were not given, and the respondents should have an opportunity to consider the consequences and the manner in which it would seek to plead to the Joint Venture Agreement.
I therefore consider it appropriate for the respondents to be required to provide further material facts with regard to the terms and conditions of the Joint Venture agreement in light of the previous pleading of this agreement in Action No 2227 of 1996.
Conclusions
1. I order that the appeal be allowed, limited to the following orders;
1.1that within 14 days the plaintiff file and serve a further amended statement of claim which particularises the matters set forth in paragraphs 18.1, 19.2 and 20.2 of the Third Amended Statement of Claim in accordance with these reasons.
1.2the cost be varied and in lieu of the order that the defendant pay the plaintiff 75% of the costs, I order that the respondents pay 75% of Starmaker’s costs of the hearing before the Master and in relation to this appeal.
1.3I dismiss the claim made by Starmaker in relation to paragraphs 19.3 and 20.3 of the Third Amended Statement of Claim.
2.I further order that the respondents provide further material facts with regard to the terms and conditions of the Joint Venture Agreement as set out in paragraph 10 of the Third Amended Statement of Claim within 14 days, in light of the previous pleading of this agreement in Action No 2227 of 1996.
3.I give liberty to Starmaker to file any amended defence to the further amendments to the Third Amended Statement of Claim within 14 days after service of the amendments on Starmaker.
4.I will hear the parties as to any orders for costs in relation to the order made in paragraph 2 hereof.