John Irving As Liquidator of Mawson KLM Holdings Pty Ltd (in Liquidation) & Anor v Starmaker (No 51) Pty Ltd - [2005] SASC 392

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
JOHN IRVING AS LIQUIDATOR OF MAWSON KLM HOLDINGS PTY LTD (IN LIQUIDATION) & ANOR v STARMAKER (NO 51) PTY LTD
Reasons for Decision of The Honourable Justice Layton
11 October 2005
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PRACTICE UNDER RULES OF COURT - PLEADINGS
PROCEDURE - COSTS
Argument as to pleadings - previous order that plaintiffs provide further material facts to the Third Amended Statement of Claim - Fourth Amended Statement of Claim subsequently filed - objection by defendant that certain paragraphs be struck out for alleged inconsistency - consideration of application of rule 46.09 of the Supreme Court Rules 1987 (SA) - further material facts required - applications for orders for costs in two previous matters - orders made.
Supreme Court Rules 1987 (SA), r 46.09, referred to.

JOHN IRVING AS LIQUIDATOR OF MAWSON KLM HOLDINGS PTY LTD (IN LIQUIDATION) & ANOR v STARMAKER (NO 51) PTY LTD
[2005] SASC 392
Civil

LAYTON J: Three matters came on for hearing before me.
The first is a pleadings argument which arises following a decision previously delivered by me on 17 August 2005 in which I ordered that the plaintiffs John Irving as Liquidator of Mawson KLM Holdings Pty Ltd (In Liquidation) (“the Liquidator”) and Mawson KLM Holdings Pty Ltd (In Liquidation) (“Mawson”), file and serve an amended statement of claim which particularised and provided further material facts on certain matters.
The second and third matters were applications for orders for costs in respect of two previous decisions delivered by me in this action.
Pleadings Argument
In a previous decision delivered by me in this action in relation to pleadings,[1] I ordered, inter alia, that the plaintiffs provide further material facts with regard to the Joint Venture Agreement (“JVA”) pleaded in paragraph 10 of the Third Amended Statement of Claim in the light of an inconsistent pleadings in relation to the same JVA set out in Action No 2227 of 1996 (“Action 2227”). The inconsistency arose because in Action 2227, Mawson had pleaded an oral variation to the JVA which variation was not adverted to in the current action. I concluded that there was a failure to plead a further material fact in relation to the JVA.
[1] John Irving as Liquidator of Mawson KLM Holdings Pty Ltd (in Liq) & Anor v Starmaker (No 51) Pty Ltd [2005] SASC 309.
The plaintiffs filed a Fourth Amended Statement of Claim purporting to be in response to the order and the further material facts alleged in their context, are set out in paragraphs 10A – 10D as appear highlighted hereunder:
10On 1 November 1996 Mawson and Starmaker entered into a further agreement (“the Joint Venture Agreement”) whereby;
10.1   the time for the exercise of the option was varied so that it could be exercised, in addition to the time set out in the Option Agreement, at any time on 1 November 1996;
10.2   Mawson and Starmaker agreed to divide the land into two portions. The first portion (“the divided land”) is the land delineated in red attached to the Joint Venture Agreement. The other portion (“the remaining land”) is the whole of the land excluding the divided land.
10.3 Mawson is entitled to the benefit of the divided land provided that the remaining land is sold and Starmaker is paid the sum of $1,470,000 and that any surplus received on the sale of the remaining land and/or the land be divided equally between Mawson and Starmaker provided that If a contract to sell the remaining land is not entered into by 15 January 1997 then the land is to be sold by Starmaker and the proceeds of sale are to be applied.
10.3.1 firstly towards the payment of all costs associated with the sale;
10.3.2 secondly in payment of $1,470,000 to Starmaker; and
10.3.3thirdly the surplus is divided equally between Mawson and Starmaker.
10A. In Supreme Court Action No. 2227 of 1996 brought by Mawson against Starmaker prior to the liquidation of Mawson, Mawson pleaded that the Joint Venture Agreement was varied as follows:
“8.On 5 November 1996 the plaintiff through its sole director, Keith Bowling and Starmaker through its agent, Donald Brownlie Fleming orally varied the Joint Venture Agreement as follows:
8.1      the plaintiff no longer retained the divided land;
8.2the whole of the land would be sold to Limanto Pty Ltd ACN 068 134 789 (“Limanto”) for the sum of $1,850,000.00;
8.3Starmaker 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 of the plaintiff’s entitlement to profit from the sale of the land to Limanto;
8.4the fee of $50,000.00 (“the signing fee”) payable by Limanto upon the signing of the contract would be paid to the plaintiff;
8.5that upon settlement of the contract to Limanto, Starmaker would receive and retain the entire sale proceeds.
(the above terms being hereinafter called the “Varied Joint Venture Agreement”).”
10B. Mawson does not agree that the Joint Venture Agreement was so varied and says that there was a collateral agreement made by Bowling and Fleming that if the land was sold to Limanto, then Starmaker would pay to Mawson, and Mawson would accept, the sum of $200,000.00 and the fee of $50,000.00 payable by Limanto, in full satisfaction of Mawson’s rights under the Joint Venture Agreement.
10C. The sale to Limanto never occurred, and neither the sum of $200,000.00 or $50,000.00 was paid to Mawson.
10D. The Joint Venture Agreement remains in full force and effect.
13    No contract to sell the remaining land was entered into on or before 15 January 1997.
Paragraphs 10, 10A, 10B, 10C and 10D and 13
Counsel for Starmaker sought that paragraphs 10A, 10B, 10C and 10D (emphasised in bold above) should be struck out. It was submitted that the pleading in these paragraphs were inconsistent with the pleading in paragraph 10. Counsel submitted that the plaintiffs were prohibited from inconsistently pleading that an alleged agreement constituted a "collateral agreement" when Mawson in Action 2227 had pleaded that an alleged agreement constituted a “variation” to the JVA. In other words Starmaker was asserting that the plaintiffs were bound by the previous pleadings of Mawson in another action and in particular that the Liquidator was estopped from pleading to the contrary in this action.
Reliance was placed on rule 46.09 and a number of authorities were cited in support of the fact that a party is unable to plead an allegation of fact or a new ground or claim which is inconsistent with a previous pleading. I had already dealt with this alleged inconsistency between two separate pleadings in two separate actions in the judgment of John Irving as Liquidator of Mawson KLM Holdings Pty Ltd & Anor v Starmaker (No 51) Pty Ltd[2] and decided that r 46.09 did not apply to that situation. In this application it is now submitted by Starmaker, that the inconsistency is present within the pleadings in this action and therefore r 46.09 applies.
[2] [2005] SASC 309.
In my view although paragraph 10A of the Fourth Amended Statement of Claim is poorly worded for reasons which I will discuss below, it appears that the intention of the plaintiff was firstly to describe the JVA in paragraph 10, then in paragraph 10A to recite the previous pleading in Action 2227 which had claimed that there was an oral variation to the JVA. Then in paragraph 10B to indicate that the alleged oral agreement pleaded in Action 2227 did not and could not amount to a “variation” to the JVA but was instead a "collateral agreement". In essence the Liquidator seeks to characterise the agreement differently from the manner in which it had previously been characterised by Mawson in Action 2227 and only pursue the argument that the oral agreement was a collateral agreement.
Counsel for Starmaker contends that this approach amounts to inconsistent pleading. In my view this argument is incorrect as the pleading in the previous Action 2227 is referred to in this action for the purpose of disclosing the previous characterisation and explicitly asserting the different characterisation for which the plaintiffs will contend in this action. The fact that the defendant may have a contrary position to that contended for by the plaintiffs, which can be set out in a defence, does not mean that the plaintiffs are prevented from putting forward its assertions. I therefore reject the argument that paragraph 10B should be struck out.
However there is force in the argument of Starmaker that the present pleading in paragraph 10B does not clearly and correctly state the position sought to be put by the plaintiffs. Paragraph 10B commences by stating "Mawson does not agree that the JVA was so varied and says that there was a collateral agreement…” (emphasis added). It is not a question of whether Mawson “agrees” or not with the previous characterisation or what it now “says”, instead what ought to be pleaded is that the previous characterisation by Mawson of an alleged oral agreement as a “variation” to the JVA in the previous action was wrong, and that the correct characterisation of the alleged agreement which is contended is that it was a “collateral agreement”. This would still leave it open to Starmaker, if it so wishes, to assert in its defence that the plaintiffs including the Liquidator, is estopped from so pleading.
Further, in paragraph 10B as previously discussed, it is asserted that the JVA was not varied and that instead there was a collateral agreement. It is not stated whether all or some of the matters set out in paragraph 10A are asserted to be the terms and conditions of the “collateral agreement”. It is necessary for paragraph 10B to set out the relevant particulars of the collateral agreement such as the terms and conditions; whether Bowling and Fleming acted for and on behalf of Mawson and Starmaker and if so on what authority (particularly in relation to Fleming who has not previously been mentioned in the Statement of Claim); whether the agreement was oral or in writing or both; and the circumstances in which the oral agreement was made.
There was also a further argument by counsel for Starmaker that there was an inconsistency between the pleading in paragraph 10C and paragraph 13. When addressing this argument, it again appeared to be that counsel for Starmaker was confusing a possible defence which involved a different fact scenario from that pleaded by the plaintiffs with an alleged inconsistency. This is not a basis for submitting that the pleading as it stands was inconsistent and should be struck out. I therefore reject that argument.
Paragraphs 19.2.1, 19.2.2, 20.2.1 and 20.2.2.
The final argument on the pleading concerned the pleading of the “detriment” to Mawson and the “benefit” to Starmaker set forth in paragraphs 19.2.1, 19.2.2, 20.2.1 and 20.2.2.
The first argument was that paragraphs 19.2.1.2 and 20.2.1 should be struck out on the basis of the allegation of the plaintiffs of there being "a clog on the equity of redemption". It was submitted that this is an allegation or conclusion of law and the plaintiffs have failed to set out the facts upon which they rely for that allegation. It became apparent when counsel for the plaintiffs made his submission that the plaintiffs were seeking to rely on more factual matters than are contained in each of the paragraphs and in particular were seeking to rely on all of the circumstances in which the Option Agreement and the JVA were entered into to support the allegation of the plaintiffs of there being "a clog on the equity of redemption". In this circumstance it appears appropriate for the plaintiffs to identify which other paragraphs of the Statement of Claim they seek to rely on to support the allegation.
With regard to paragraphs 19.2.2 and 20.2.2, the essential argument of Starmaker was that it was contradictory for the plaintiffs to allege that the "benefit" to Starmaker was that it had lent money to Mawson "at an extortionate interest-rate" (being the basis for the claim of "an unfair loan” contrary to s 588FD of the Corporations Law); and further that it was a “benefit” to Starmaker that the Option Agreement and the JVA are alleged to be “void”. It was submitted that these allegations could never amount to a “benefit” to Starmaker.
The particulars which were required to be provided by the plaintiffs were particulars as to why "a reasonable person in Mawson's circumstances would not have entered into" the transactions having regard to the "benefits and detriment to Mawson and the benefit to Starmaker". It is apparent that the plaintiffs in paragraphs 19.2.2 and 20.2.2, have simply reversed what was pleaded as a “detriment” to Mawson, into being a “benefit” to Starmaker including the allegation of the matters in effect an “unfair loan” or “void”. It is quite inappropriate to assert as a “benefit” of Starmaker, the very conclusion Mawson seeks to have the Court make by way of declarations against Starmaker. Instead the plaintiffs should particularise the facts which they assert amounted to the benefit(s) which Starmaker attained in respect of the transactions which they assert are relevant to demonstrate why, "a reasonable person in Mawson's circumstances would not have entered into" the particular transactions.
Conclusion
I order that within 14 days the plaintiffs file and serve a further amended statement of claim to provide:
1       Further material facts in relation to paragraph 10B by:
1.1   deleting the words “Mawson does not agree … and says.” and substituting them with an allegation which contains greater clarity and precision as to what is contended by the plaintiffs in relation to the alleged agreement in accordance with these reasons;
1.2             providing further material facts as to the alleged “collateral agreement”, namely;
§whether the collateral agreement was oral, or in writing or both with appropriate particulars;
§whether Bowling and Fleming acted for and on behalf of Mawson and Starmaker and if so in what capacity and with what authority;
§the circumstances in which the agreement was made for example whether it was by telephone or a face-to-face meeting and who was present;
§
the terms and conditions of the collateral agreement.

1.3Providing further material facts as to which additional paragraphs of the Statement of Claim are relied upon to support the allegation of there being “a clog on the equity of redemption” as alleged in paragraphs 19.2.1 and 20.2.1.
1.4Providing further material facts as to what “benefits” the plaintiffs allege the defendant obtained by virtue of entering into the respective transactions referred to in paragraphs 19.2.2 and 20.2.2.
2That the plaintiffs do pay the defendant the costs of and incidental to this application to be agreed or taxed.
Applications for Orders for Costs
In Action No. 883 of 2000: Pleadings
In this decision concerning pleadings, I reserved one aspect of costs for further consideration upon hearing the parties. This reservation was in respect of an additional ground to strike out pleadings on the basis of inconsistency of pleadings of Mawson in Action 2227 and this action, namely 883 of 2000. Starmaker sought to apply r 46.09. I rejected the argument that r 46.09 was relevant, but acceded to the need for the pleadings to provide further material facts.
Although I rejected the primary argument, Starmaker was successful in obtaining a remedy and I consider that the plaintiffs should pay the defendant’s costs of this argument to be agreed or taxed.
In Action No 1361 of 1997: Proof Of Debt
This decision concerned a rejection by the Master of the direction sought by Starmaker that the Liquidator admit the Proof of Debt submitted by it of 12 May 1998. There were six grounds of appeal and there were other issues regarding setting aside the resolutions of creditors; an application requiring the Liquidator to produce the costs agreement; fixing a date for creditors to prove their debts; and objecting to the Liquidator deciding on the Amended Proof of Debt when the Proof of Debt was already before the Court.
Each of the arguments put forward by Starmaker were rejected. The appeal was successful only in respect of Starmaker being found to have standing to challenge the rejection of the Proof of Debt and that the issue of rejection should be heard and determined at the same time as the hearing in Action 883 of 2000. This was therefore only partial success, each party was partly successful in their respective contentions. I consider it appropriate to make no order for costs, both in respect of the hearing before the Master and the hearing before me.
As to the future when the issue of the rejection of the Proof of Debt is argued, the costs in relation to that matter is appropriately to be determined by the trial judge and is not a matter which I should consider.