Jones v Daytrader HQ Ltd
[2003] FCA 586
•13 JUNE 2003
FEDERAL COURT OF AUSTRALIA
Jones v Daytrader HQ Ltd [2003] FCA 586PRACTICE AND PROCEDURE – motion to strike out pleading – no point of principle
GLEN JONES and WINTEROAK PTY LTD v DAYTRADER HQ LTD, ROSS SMITH, CRAIG READHEAD, PETER MOLONEY and CHRISTOPHER TATE
S3007 of 2001CARR J
13 JUNE 2003
PERTH
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
S3007 OF 2001
BETWEEN:
GLEN JONES
First ApplicantWINTEROAK PTY LTD (ACN 070 526 144)
Second ApplicantAND:
DAYTRADER HQ LTD (ACN 086 972 429)
First RespondentROSS SMITH
Second RespondentCRAIG READHEAD
Third RespondentPETER MOLONEY
Fourth RespondentCHRISTOPHER TATE
Fifth RespondentJUDGE:
CARR J
DATE OF ORDER:
13 JUNE 2003
WHERE MADE:
PERTH
THE COURT ORDERS THAT:
1. The respondents’ motion, notice of which was filed on 5 March 2003, be dismissed.
2. The respondents pay the applicants’ costs of the motion.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
S3007 OF 2001
BETWEEN:
GLEN JONES
First ApplicantWINTEROAK PTY LTD (ACN 070 526 144)
Second ApplicantAND:
DAYTRADER HQ LTD (ACN 086 972 429)
First RespondentROSS SMITH
Second RespondentCRAIG READHEAD
Third RespondentPETER MOLONEY
Fourth RespondentCHRISTOPHER TATE
Fifth Respondent
JUDGE:
CARR J
DATE:
13 JUNE 2003
PLACE:
PERTH
REASONS FOR JUDGMENT
INTRODUCTION
This is a motion on notice by the respondents to strike out numerous paragraphs of the further amended statement of claim. The facts which are pleaded in that document are, in summary, as follows.
The first applicant (“Mr Jones”) was employed by the first respondent (“Daytrader”) as its sales manager for South Australia between 9 November 1999 and 17 October 2001. The second applicant (“Winteroak”) is a company owned and controlled by a Mr Stephen Dinnes (“Mr Dinnes”). Mr Dinnes was employed by Daytrader as sales executive for Western Australia between about 1 March 1999 and 5 October 2001. Daytrader was incorporated in Western Australia. This case is concerned with shares in its capital which were issued at or about the time the company was initially listed on the Australian Stock Exchange (“the ASX”).
The second respondent (“Mr Smith”) was at all material times chief executive officer and an executive director of Daytrader. The third respondent (“Mr Readhead”) was at all material times a director and the non-executive chairman of Daytrader. The fourth and fifth respondents (“Mr Moloney” and “Mr Tate”) were at all material times directors of Daytrader. Mr Tate was also the managing director of Daytrader.
In paragraphs 10-18 of the statement of claim the applicants plead a series of statements which (at the end of paragraph 18) they say are thereafter together referred to as “the Daytrader Representations”. They were said to be as follows:
Mid February 2000 in Adelaide (oral); (paragraph 10)
Mr Smith (on behalf of Daytrader) told Mr Jones that Daytrader would be listed on the ASX, that the float would be successful and that people who invested in the initial public offering (“the IPO”) would make a substantial profit.
March 2000 (oral); (paragraph 11)
Mr Smith (on behalf of Daytrader) told Mr Dinnes that Daytrader would be floated on the ASX, its employees would be encouraged to participate in the IPO, Daytrader would issue options and shares to all employees pursuant to an employee share plan (“the ESP”) and an employee share and option plan (“the ESOP”), and, in addition, Daytrader would set aside other shares which its employees could subscribe for in priority to the public (“the Employee Priority Share Offer”).
18 April 2000; (paragraph 12)
Daytrader’s Board of Directors resolved to introduce a trading policy restricting its employees’ ability to buy or sell shares in the company to the 48 hour period immediately following the announcements of its half year and full year financial results and any annual general meeting announcement.
25 April 2000; Mr Storm’s e-mail message (paragraph 13)
The chief financial officer and company secretary of Daytrader, Mr Simon Storm, on behalf of Daytrader sent an e-mail message to Mr Dinnes which:
· informed him of the number of options and shares in Daytrader proposed to be issued to Mr Dinnes pursuant to the ESP and ESOP, that those shares and options were subject to certain conditions, that Daytrader expected a high level of interest in its shares; and
· requested Mr Dinnes to let him know how much he wished to invest in Daytrader as part of the Employee Priority Share Offer.
25 May 2000; Mr Smith’s e-mail message to all staff, including Mr Jones and Mr Dinnes (paragraph 14)
Mr Smith sent an e-mail message to all Daytrader’s staff, including Mr Jones and Mr Dinnes, stating that he wished to be able to state in the proposed prospectus that Daytrader’s employees had fully subscribed to a priority allocation of four million shares, that Daytrader could then offer seven million shares in the IPO as a priority offer to its clients and that on or after listing on the ASX it was intended that employees and clients of Daytrader would own more than 75% of the shares in the company.
25 May 2000; Mr Smith’s further e-mail message (paragraph 15)
Mr Smith sent an e-mail message to all Daytrader staff, including Mr Jones and Mr Dinnes, stating that there would be no shares or very few shares available to the general public in the IPO (excluding clients and employees of Daytrader) and that accordingly the public would have to buy shares on the market after Daytrader was listed on the ASX and that this would create a strong demand for Daytrader’s shares.
16 June 2000; Letter from Daytrader to Mr Jones and Mr Dinnes (paragraph 16)
Daytrader sent a letter to Mr Jones and to Mr Dinnes stating that any options issued to them pursuant to the ESOP would vest as to 40% of them at the end of twelve months from issue and as to the balance after twenty-four months from issue. The letter also stated that a participant in the ESP must not sell, transfer, assign, mortgage, charge or otherwise encumber the shares issued to and pursuant to the ESP as to 40% of them until twelve months after the date of issue of the shares and as to the balance until twenty-four months after the date of issue. The letter contained a request that Mr Jones and Mr Dinnes return the applications for shares in Daytrader pursuant to the Employee Priority Share Offer with a cheque for the appropriate subscription amount by 23 June 2000.
16 June 2000; the ESOP Rules (paragraph 17)
Daytrader provided Mr Jones and Mr Dinnes with a copy of the ESOP Rules, Clause 3 in Schedule 1 of that document provided that a person to whom options were granted could not sell, transfer or otherwise dispose of or make a declaration of trust in respect of those options.
16 June 2000; the ESP Rules (paragraph 18)
Daytrader provided Mr Jones and Mr Dinnes with a copy of the ESP Rules, Clause 7.1 of which provided that a participant in the ESP could not sell the shares issued to him or her, as to 40% of them until twelve months after the issue and as to the balance until twenty-four months after the issue.
In paragraphs 19 and 20 of the statement of claim the applicants plead certain statements contained in a prospectus (“the Prospectus”) lodged on 9 June 2000 with the Australian Securities and Investments Commission. The applicants refer to them as “the Prospectus Representations”. Those Representations are said to be that:
· the invitation to subscribe was for fourteen million new shares at an issue price of 50 cents each;
· of those fourteen million shares Daytrader had set aside four million for subscription by employees and seven million for subscription by its clients;
· in addition to the fourteen million shares to be issued under the Prospectus, there would be shares issued to employees under the ESP upon such terms as the Board of Daytrader might determine, including restrictions as to when those shares might be sold by participating employees;
· shares issued to employees under the ESP on or before the listing of Daytrader on the ASX could only be sold as to 40% of them twelve months after listing and the remainder after two years and where shares were subsequently issued after such time (if any) as determined by the Board; and
· the fourteen million new shares to be issued under the Prospectus would on listing on the ASX be freely transferable subject to the provisions of the ASX listing rules and the Corporations Law.
In paragraph 21 the applicants plead that the Prospectus Representations were continuing representations from the date upon which they were made to the date of listing of Daytrader’s shares on the ASX (24 July 2000) because they were on their terms (and were intended to be) a representation relied upon at all material times by those to whom it was made and those persons were reasonably entitled to assume the accuracy of the Prospectus Representations in the absence of any appropriate corrective material.
In paragraph 22 the applicants plead that at no time between February 2000 and 18 July 2000 did the respondents disclose that there would be restrictions placed on the ability of any of Daytrader’s employees to trade any shares acquired pursuant to the Prospectus.
In paragraph 23 the applicants plead that the facts pleaded in all the foregoing paragraphs other than paragraph 12 (which recited the share trading policy adopted by Daytrader’s Board on 18 April 2000), constituted conduct amounting to representations by Daytrader and Mr Smith to Messrs Jones and Dinnes that:
· unlike the shares and options issued to Daytrader’s employees pursuant to the ESP and ESOP, shares purchased by them pursuant to the Prospectus would not be subject to any conditions or restrictions on sale other than those imposed by law;
· the price of Daytrader’s shares would increase significantly as a result of the high demand and limited supply; and
· the shares to be issued to Daytrader’s employees pursuant to the Prospectus would, from the date upon which Daytrader was listed on the ASX, be freely transferable.
The applicants describe these representations together as being the “Share Trading Representations”.
There then followed the first group of paragraphs (three paragraphs) which the respondents seek to have struck out. They are as follows:
‘Reliance
24.In reliance upon each of the Daytrader Representations, the Prospectus Representations and the Share Trading Representations, on or about 20 June 2000, Jones:
24.1Pursuant to the Prospectus, subscribed for 400,000 ordinary shares in Daytrader in his own name;
24.2Pursuant to the Prospectus, subscribed for 24,000 ordinary shares in Daytrader as Trustee for the Glen Jones Superannuation Fund;
24.3Borrowed $112,000 on an interest only loan for the purpose of partially financing the purchase of the above shares.
25.In reliance upon each of the Daytrader Representations, the Prospectus Representations and the Share Trading Representations, on or about 26 June 2000, Dinnes caused Winteroak to:
25.1Pursuant to the Prospectus, subscribe for 400,000 shares in Daytrader its own capacity;
25.2Pursuant to the Prospectus, subscribe for 300,000 shares in Daytrader as trustee of the Braveheart Superannuation Fund; and
25.3Borrow £40,000 from Roy Dinnes, the brother of Dinnes, for the purpose of partially financing the purchase of the shares referred to in paragraph 25.1.
25.4Enter into an agreement with Roy Dinnes pursuant to which the funds referred to in sub-paragraph 25.3 were provided on condition that a minimum return of £40,000 plus costs and a premium of £10,000 be repaid by Winteroak to Roy Dinnes by 15 September 2000.
26.Jones and Winteroak acquired their shares pursuant to the Prospectus with the intention of exercising and in the belief, induced by the Daytrader Representations, the Prospectus Representations and the Share Trading Representations, that they were free to exercise, their rights in respect of them to the fullest extent allowed by the law.’
In paragraph 26A the applicants plead that they acquired their shares pursuant to the Prospectus with the intention of selling them within the first three days of the commencement of trading. It is convenient at this point to deal with the respondents’ objections to paragraphs 24 to 26 of the statement of claim.
In ground 1 of the motion the respondents assert that the applicants must specify separately which of the Daytrader Representations are relied upon to support their causes of action. In that ground they say that for example paragraph 12 could not arguably sustain any of the alleged causes of action relied upon by the applicants.
In their written submissions the respondents say that the matters pleaded at paragraphs 10 to 18 of the statement of claim are separate and distinct. They point to the fact that at paragraph 57 the applicants allege that the Daytrader Representations were misleading and deceptive and at paragraph 108 that they were false and untrue. These pleas apply to the entirety of the Daytrader Representations without specifying in relation to each such allegation why it is alleged to be either misleading or untrue. The respondents contend that it is apparent from the pleading as a whole that the Daytrader Representations are in fact only relied upon to sustain the allegation pleaded at paragraph 73. The respondents submit that the applicants need to clarify what specific conduct they allege arises from the Daytrader Representations. The vast majority of those representations, so it is contended, cannot arguably sustain any cause of action. The submissions conclude by pointing out that the applicants do not even allege that they were aware of the matters pleaded at paragraph 12.
MY REASONING IN RELATION TO PARAGRAPHS 24-26
In my opinion, these paragraphs should not be struck out. There is a slight degree of ambiguity which arises out of the fact that in paragraph 18 the statements set out in paragraphs 10-18 inclusive are said to be the Daytrader Representations while paragraph 23 excludes paragraph 12 from the pleaded facts said to amount to the Share Trading Representations. However, it is apparent from the statement of claim as a whole that the applicants did not rely upon what is pleaded in paragraph 12 of the statement of claim when they purchased or caused the shares to be purchased. As the applicants explain in paragraph 17.3-17.6 of their written submissions, their claim is that the cumulative effect of the various representations was to convey the message that Daytrader shares purchased via the Prospectus (as distinct from shares issued pursuant to the ESP or ESOP) were freely transferable, whereas as appears from the statement of claim, that was not the case because they were subject to a restrictive Board policy, being the policy pleaded in paragraph 12 of the statement of claim.
In their submissions in reply the respondents say that their concerns in relation to the pleading of the Daytrader Representations “have been clarified by paragraph 17.3 of the applicants’ submissions”. I take this to be at least a partial acknowledgement that their attack on these paragraphs must fail.
For the reasons I have set out above, the paragraphs will not be struck out.
Consequently paragraphs 57, 73, 74, 92, 95A, 104, 105, 107, 108 and 109 (which the respondents also impugn on the same bases) will not be struck out either. I now return to the task of summarising further paragraphs of the statement of claim.
The applicants plead that in early July 2003, Mr Jones and Mr Dinnes were allotted shares pursuant to the ESP and options pursuant to the ESOP. I think that it is important to distinguish those shares and options from the shares which are the subject of the next stage of the statement of claim.
The applicants next plead that, also on 3 July 2000, Daytrader, pursuant to the Prospectus and in response to the respective subscriptions referred to above, allotted 400,000 ordinary fully paid shares to Mr Jones, 24,000 ordinary fully paid shares to him on behalf of his superannuation fund and on the same date, allotted 400,000 ordinary fully paid shares to Winteroak in its own capacity and 300,000 such shares to it as trustee for the Braveheart Superannuation Fund.
Next the applicants plead certain communications by which trading restrictions were imposed upon them in relation to those shares allotted to them pursuant to the Prospectus. They were are follows.
18 July 2000 (paragraph 31)
Mr Smith posted an electronic warning on Daytrader’s website to all employees that if they sold shares issued to them pursuant to the Prospectus their employment would be terminated.
21 July 2000 (paragraphs 32 to 34)
Mr Storm on behalf of Daytrader circulated by e-mail a policy (“the Trading Policy”) governing the terms on which employees or their related companies could sell any shares in Daytrader, issued pursuant to the ESP, ESOP or otherwise. The Trading Policy purported to bind all employees of Daytrader and accordingly they were not permitted to trade any of their shares in Daytrader other than in accordance with it. The Trading Policy stated that all employees were deemed to be in possession of price sensitive information, that accordingly they were not permitted to buy or sell Daytrader shares as and when they wished and that they could only buy or sell Daytrader shares or options, after notifying the Board, through the Company Secretary, of their intention to do so, during a 48 hour “window” commencing 48 hours after any public announcement was made by Daytrader (“the 48 Hour Window”).
In the next two paragraphs of the statement of claim it is alleged that Mr Jones sent an e-mail message to Mr Storm on 22 July 2000 asking how the Trading Policy affected the rights attached to the shares which he had acquired pursuant to the Prospectus (paragraph 35) and in paragraph 36 it is pleaded that Daytrader was listed on the ASX on 24 July 2000. On 25 July 2000, Mr Jones sent a further e-mail message to Mr Storm seeking the same information requested on 22 July 2000, but never received any response to those e-mail messages.
25 July 2000; Conversation between Mr Dinnes and Mr Storm (paragraph 38)
Mr Dinnes told Mr Storm that Winteroak wished to sell the shares which it had acquired pursuant to the Prospectus. Mr Storm told Mr Dinnes that he and Winteroak were unable to sell his shares due to the Trading Policy and that if either of them sold any of the shares acquired pursuant to the Prospectus, contrary to the Trading Policy, Mr Dinnes’ employment with Daytrader would be terminated.
Next it is pleaded that Daytrader’s shares reached their highest price in the first five days of trading i.e. between 24 July and 28 July 2000.
The applicants then plead various sales by Mr Jones and Winteroak between 27 July 2000 and 14 August 2000 of shares in Daytrader acquired by them pursuant to the Prospectus.
30 August 2000; Mr Tate’s e-mail message
On 30 August 2000, Mr Tate sent an e-mail message to Mr Jones informing him that as a result of the sale of his shares during the period 27 July 2000 to 3 August 2000 the Board of Daytrader had issued him (Mr Jones) with a formal reprimand and had revoked the options allotted to him pursuant to the ESOP.
30 August 2000; Mr Tate’s further e-mail message to all employees (paragraph 46)
Mr Tate sent an e-mail message to all employees of Daytrader requiring them to sign and return a copy of the Trading Policy, informing them that a senior member of staff had been reprimanded and lost his option entitlements following a dealing in shares otherwise than in accordance with the terms of the Trading Policy, and that the Board would have no hesitation in taking similar action against other employees who acted otherwise than in accordance with the term of the Trading Policy.
8 September 2000; Mr Storm’s e-mail message (paragraph 47)
Mr Storm sent an e-mail message to all Daytrader staff stating that the Board had a discretion to allow the purchase and sale of shares outside the “designated period”, the right to veto any trading by employees of their shares in Daytrader and that Daytrader and its Board did not expect the employees to engage in any short term trading in Daytrader shares.
Next the applicants allege that as a result of the pleaded conduct of the respondents between 18 July 2000 and 8 September 2000, Mr Jones and Mr Dinnes were unsure of and were concerned as to when or if they could trade the shares which Mr Jones and Winteroak had acquired in Daytrader pursuant to the Prospectus.
There then follow two paragraphs which the respondents seek to have struck out. They read as follows:
‘49.As a result of the matters pleaded in paragraphs 31 to 35, 37-39, 43 and 45 to 47 inclusive, Jones believed on reasonable grounds that if he sold any further shares he acquired pursuant to the Prospectus in addition to the shares referred to in paragraphs 41 to 43 above, that his employment with Daytrader could be terminated and that the options allotted to him pursuant to the ESOP would be revoked.
50.As a result of the matters pleaded in paragraphs 35, 37-39, 41 to 43 and 45 to 47 inclusive, Dinnes believed on reasonable grounds that if he caused Winteroak to sell any further shares it acquired pursuant to the Prospectus, that Dinnes’ employment with Daytrader could be terminated and that the options allotted to him pursuant to the ESOP would be revoked.’
The respondents contend that paragraphs 49 and 50 should be struck out as embarrassing because they are not able to be sustained by reference to the matters pleaded in paragraphs 31-35, 37-39, 41-43 and 45-47 and further that they are inconsistent with the acts of the applicants in paragraphs 52 to 56 and 77.
MY REASONING IN RELATION TO PARAGRAPHS 49 AND 50
In my view, the pleas in paragraphs 49 and 50 can be sustained by reference to the matters pleaded in the paragraphs referred to. Subject to the evidence adduced at trial, they are a logical consequence of the matters pleaded in those paragraphs, in particular Mr Smith’s memo of 18 July 2000, Mr Tate’s e-mail message of 30 August 2000 and Mr Storm’s e-mail message of 8 September 2000.
The acts said to be inconsistent with the beliefs pleaded in paragraphs 49 and 50 are some sales of Daytrader shares by Winteroak in November 2000 and April and May 2001 (paragraphs 52 to 56) and a plea, in paragraph 77, that Mr Jones and Mr Dinnes considered that they had no reasonable alternative but to comply with the terms of the Trading Policy because if they did not do so their employment could be terminated and the options and shares issued to them pursuant to the ESP and ESOP would be revoked.
I can see no inconsistency between the belief pleaded in respect of Mr Dinnes in paragraph 50 and the subsequent sales made by Winteroak a few months later. For example, Mr Dinnes may have decided to take his chances. Furthermore, the actions of Winteroak have no bearing on Mr Jones’ belief as pleaded in paragraph 49. As to the plea in paragraph 77, I see no inconsistency at all. A simple reading of the belief pleaded in paragraphs 49 and 50 and the plea in paragraph 77 demonstrates, in my view, the absence of any such inconsistency. Paragraphs 49 and 50 will not be struck out. I return to the statement of claim.
The applicants plead (in paragraph 51) that had Mr Jones and Mr Dinnes been informed that Daytrader would introduce the Trading Policy and that Mr Jones and Winteroak would be unable to sell the shares within the first three trading days on the ASX or as and when they saw fit, they would have invested a maximum of $10,000 each in the IPO.
The applicants then plead that the Daytrader Representations and the Share Trading Representations were misleading and deceptive contrary to s 995 of the Corporations Law and that Messrs Smith, Readhead, Moloney and Tate were persons involved in that contravention. The applicants say that the extent to which the conduct of Daytrader and those persons constituted representations as to future matters is dealt with in paragraph 72-75 of the statement of claim. They plead that they have suffered loss and damage by reason of the pleaded contraventions. The Prospectus Representations are said to be misleading or deceptive in that, contrary to the representations pleaded, Mr Jones and Winteroak were prevented from selling or were otherwise not free to sell the shares acquired pursuant to the Prospectus and, as at the date of listing on the ASX, Daytrader shares issued to employees pursuant to the Prospectus were not freely transferable.
The applicants make similar pleas in relation to the Prospectus Representations as contravening s 728(1) of the Corporations Law.
The respondents next contend that the following paragraphs should be struck out:
‘Duress
76. The Applicants repeat paragraphs 1, 3, 10 to 26 and 31 to 50 above.
77.As a result of the matters pleaded in paragraphs 31 to 48 above, Jones and Dinnes (and Winteroak) considered that they had no reasonable alternative but to comply with the terms of the Trading Policy because if they did not comply with the terms of the Trading Policy, their employment with Daytrader could be terminated and the options and shares issued to them pursuant to the ESP and ESOP would be revoked.
78.The imposition of the terms of the Trading Policy on Jones and Winteroak (through Dinnes) amounted to a variation of the terms of the agreement pursuant to which Jones and Winteroak subscribed for shares in Daytrader pursuant to the Prospectus (the “Variation”)
79.In the circumstances, as employees of Daytrader, Jones and Dinnes (and hence Winteroak) were compelled to comply with the terms of the Trading Policy and did not agree to be bound by the terms of the Trading Policy of their own free will.
80.The conduct of the Respondents pleaded in paragraphs 31 to 34, 38, 39 and 45 to 47 above was unconscionable and accordingly amounted to the exertion of illegitimate pressure by the Respondents on Jones and Dinnes.
Particulars
80.1The Respondents had no legal or legitimate right to unilaterally impose the terms of the Trading Policy on the Applicants and Dinnes;
80.2The Respondents had no legal or legitimate right to terminate or threaten the termination of the employment of Jones and/or Dinnes if they did not comply (or in the case of Dinnes, cause Winteroak to comply) with the terms of the Trading Policy;
80.3The Respondents had no legal or legitimate right to revoke or threaten to revoke the shares and options issued to Jones and Dinnes pursuant to the ESP and ESOP if Jones and/or Dinnes (or in the case of Dinnes, Winteroak) did not comply with the terms of the Trading Policy.
81.As a result of the matters pleaded in paragraphs 76 to 80 above, the Respondents procured the Applicants’ (and Dinnes’) consent to the Variation by duress.
82.In the circumstances pleaded in paragraphs 76 to 81, the Variation is voidable at the instance of Jones and Dinnes.
Unconscionable Conduct
83.The Applicants repeat paragraphs 10 to 26 and 31 to 50 above.
84.Daytrader, as the employer of Jones and Dinnes, had superior bargaining power over Jones and Dinnes.
85.Jones and Dinnes, as employees of Daytrader and as a result of the conduct of the Respondents pleaded in paragraphs 31 to 34, 38, 39, and 45 to 47, were under a special disadvantage in their dealings with Daytrader.
86.The Respondents knew that Jones and Dinnes were in a position of special disadvantage in their dealings with Daytrader due to the employer-employee relationship and the conduct of the Respondents pleaded in paragraphs 31 to 34, 38, 39 and 45 to 47 above.
87.The Applicants repeat paragraphs 77 and 78 and say that the Respondents took advantage of the position of special disadvantage of Jones and Dinnes by requiring Jones and Dinnes to consent to the Variation.
88.No consideration was given by Daytrader to Jones and Dinnes (or Winteroak) for their consent to the Variation.
89.By agreeing to the Variation, Jones and Dinnes (and hence Winteroak) agreed to forego their right to trade the Daytrader shares they acquired pursuant to the Prospectus as and when they saw fit.
90.The conduct of the Respondents pleaded in paragraphs 83 to 89 above amount to unconscionable conduct.
91.As a result of the matters pleaded in paragraphs 83 to 90 above, the Variation is voidable at the instance of Jones and Dinnes.’
In summary, the respondents in their submissions focus on the allegations in paragraphs 82 and 91 that the Variation is “voidable at the instance of [the applicants]” and the fact that the applicants have sought, by way of relief, that the Variation be declared voidable. The respondents say that paragraphs 76-82 and 83-91 and the prayer for a declaration that the Variation is voidable should be struck out on the basis that they disclose no reasonable cause of action and have a tendency to cause embarrassment and delay in the proceedings. This is because, so it is put, the applicants have not pleaded any election to rescind the Variation, Mr Dinnes ceased employment with Daytrader on 5 October 2001, and Mr Jones ceased employment with that company on 17 October 2001. As neither of them had elected to rescind the Variation before such cessation, any election to rescind the Variation if made now is, so the respondents contend, irrelevant as the Trading Policy no longer applies to the applicants.
The respondents make no submission that the plea of unconscionable conduct is otherwise unarguable.
MY REASONING IN RELATION TO PARAGRAPHS 76-91
In my view, these paragraphs disclose reasonable causes of action. In the light of recent High Court authority, Australian Competition and Consumer Commission v C.G. Berbatis Holdings Pty Ltd [2003] HCA 18, I have some reservations about the unconscionability plea, but that matter can be resolved when the facts are found after a trial.
The plea for declaratory relief is expressed in the alternative to, relevantly, damages at common law. To the extent that a declaration of voidability may assist in giving rise to an entitlement to damages which (on the state of the papers to date) I cannot rule out as being unarguable, then the question whether the Variation was voidable is a proper issue which the applicants are entitled to raise.
The applicants do not plead that the issue of these proceedings amounts to an election to avoid the Variation, but I do not think that it is necessary to do so. In my view, it is open for the applicants to argue at trial that the issue of these proceedings (and the matters pleaded in the statement of claim) amounted to an election to avoid the Variation and to seek a declaration accordingly.
I decline to strike out these paragraphs.
The next bracket of paragraphs which the respondents move to strike out are paragraphs 96 to 100 which are in the following terms:
‘Breach of contract
96.Jones and Winteroak were at all material times, members of Daytrader.
97.The circumstances in which the rights attaching to the shares issued by Daytrader pursuant to the Prospectus can be varied are set out in clause 4 of Daytrader’s Constitution and section 246B of the Act.
98.The introduction of the Trading Policy amounted to an unauthorised variation of the rights attaching to the shares issued pursuant to the Prospectus contrary to clause 4 of Daytrader’s Constitution and section 246B of the Act.
99.In the circumstances, the conduct of Daytrader pleaded in paragraph 98 above amounted to a breach of contract between Daytrader and Jones and Winteroak.
100.As a result of Daytrader’s conduct pleaded in paragraph 98 above, Jones and Winteroak have suffered loss and damage. Details of the loss and damage are particularised in paragraphs 118 to 121 below.’
THE RESPECTIVE SUBMISSIONS AND MY REASONING IN RELATION TO PARAGRAPHS 96-100
The respondents say that, in effect, the above paragraphs amount to a plea that the Trading Policy was unauthorised and therefore ineffective. That, so it is put, does not give rise to a breach of contract claim. Accordingly, they contend that paragraphs 96-100 should be struck out as disclosing no reasonable cause of action and having a tendency to cause embarrassment and delay in the proceedings.
The applicants explain that they are simply seeking to plead that the introduction of the Trading Policy purported to be a unilateral variation of their contractual rights arising out of their subscription for the shares pursuant to the terms of the Prospectus.
So read, in my view, the plea can be seen as one of breach of that contract caused, on the applicants’ case, by the introduction of the Trading Policy. In my view, these paragraphs should not be struck out.
The respondents next contend that paragraph 112 of the statement of claim should be struck out. It reads as follows:
‘112.It was an implied term of each of the said employment contracts that Daytrader was under an obligation to Jones and Dinnes to act in good faith towards Jones and Dinnes and in particular, that Daytrader would not:
112.1abuse its position and power as a consequence of being the employer of Jones and Dinnes to impose upon them terms and conditions outside of the employment contracts which they had not agreed to and which were likely to cause them financial harm;
112.2seek to unreasonably interfere with the private interests of Jones and Dinnes or their related companies; and
112.3terminate or threaten termination of Jones and Dinnes’ employment contracts except as provided by the terms of the employment contracts or by law.
Particulars
The terms are implied by law.’
The respondents submit that the implied terms pleaded above do not arguably arise as a matter of law. They submit that the duties generally imposed at law by implication on an employer are to remunerate the employee, to co-operate in carrying out the employment contract, to take reasonable care for the safety of the employee, to provide work, to indemnify the employee for expenses incurred on the employer’s behalf and to provide medical assistance. As the implied terms do not arguably arise, the respondents say that paragraphs 110 to 116, which plead breach of the pleaded implied terms should be struck out as disclosing no reasonable cause of action. Finally, the respondents point out that Winteroak was not a party to the employment contract between Daytrader and Mr Dinnes.
MY REASONING IN RELATION TO PARAGRAPH 112
Applying the well-accepted principles explained in the authorities in relation to striking out hopeless cases, I do not think that it is sufficiently clear at this stage of the proceedings that, as a matter of law, the above terms would not be implied into the employment contracts made between Daytrader and Mr Dinnes. I accept the applicants’ submissions that whether or not, as a matter of law, these terms will be implied into the contracts of employment of Mr Jones and Mr Dinnes will depend largely upon the facts proved at trial. The terms which can be implied, as matter of law, into a particular contract may well vary with the particular circumstances in which the contract was entered. I will not strike out these paragraphs. The applicants concede that Winteroak was not a party to the employment contract between Daytrader and Mr Dinnes. They further concede that the plea of loss and damage suffered by Winteroak arising from the alleged breach of the employment contract cannot stand as currently pleaded. They consent to “these relevant parts of the claim” being struck out with leave to replead, if so advised.
I do not propose to make an order at this stage striking out any particular portions of the paragraphs concerned, but I will entertain an application in due course from the applicants for leave to amend.
The next paragraph to which the respondents object is paragraph 114 which reads:
‘In breach of the said employment contracts, Daytrader purported to vary the employment contracts by imposing the Trading Policy unilaterally and without the free consent of Jones and Dinnes.”
MY REASONING IN RELATION TO PARAGRAPH 114
The respondents say that by reason of the way that paragraph 114 is pleaded, the breach of employment contract claim in paragraphs 110-116 does not arguably arise as, so they submit, there has been no breach of the terms pleaded in paragraph 112. That is, the respondents say that the applicants’ case is that the Trading Policy was a “purported” variation, not an effected variation. This is to plead, so it is put, inconsistent cases and paragraphs 110-116 should be struck out as disclosing no reasonable cause of action and having a tendency to cause embarrassment and delay in the proceedings. In response to the applicants’ explanation that their plea is that the respondents unilaterally and without consent sought to vary the employment contract, the respondents say that this can only mean that the Trading Policy did not apply to the applicants.
In my view, it is reasonably arguable that an attempt unilaterally to impose a variation to a contract amounts to a breach of contract. I do not see the plea as being inconsistent. The respondents know the case which they have to meet. The paragraphs will remain.
In paragraphs 119-121 the applicants plead loss and damage and quantify that damage in two alternative ways. In paragraph 118 Mr Jones calculates his loss and damage by starting with the sum of $200,000 which he paid for the shares pursuant to the Employee Priority Share Offer, and deducting an amount of $10,000 which he would have invested had he been aware that Daytrader would introduce the Trading Policy. He further deducts the amount of $122,474.14 which he recovered by selling 71,926 of his shares. Mr Jones also claims on behalf of the Glen Jones Superannuation Fund the sum of $12,000 being the amount paid for the shares, pursuant to the Employee Priority Share Offer, for his superannuation fund. Finally, on the first basis of his calculations, he claims $21,985.89 as interest paid, administrative fees, loan set-up costs and refinancing costs on the loan which he pleads was taken out to finance the purchase of the shares.
Winteroak makes a similar claim and calculation in paragraph 120.
The respondents say that the applicants are only “arguably entitled to recover damages” under this heading by having regard to what they would have received if they had traded shares in accordance with the Trading Policy i.e. within the 48 hour period immediately following Daytrader’s half-year and full year financial announcements and any annual general meeting announcements. They contend that the pleas made in paragraphs 118 and 120 do not take into account these “windows” when the applicants would have been able to sell their shares. They assert that the applicants’ claim is put on the basis that they could never trade their shares at all. Therefore, so they contend, “the quantum of damages pleaded does not arguably arise from the alleged causes of action”.
The applicants say that the respondents have misunderstood their plea. Their essential case is that they purchased shares via the Prospectus. They would not have bought any more shares other than $10,000 worth via the Prospectus had they been made aware of the proposed trading restrictions. Their claim for damages is to be put in the position they would have been in they had only bought $10,000 worth of shares via the Prospectus.
In their reply, the respondents maintain their submission that the only arguable case open to the applicants is that they could have traded shares in Daytrader in accordance with the Trading Policy.
MY REASONING IN RELATION TO PARAGRAPHS 118 AND 120
I am not satisfied that the first basis upon which the applicants quantify their loss is unarguable. In fact, I am not persuaded that it would be appropriate to strike out what are, in effect, particulars designed to quantify damages. In my view, it is arguable that the method adopted by the applicants to measure the amount which would be appropriate to put them in the position they would have been if they had only bought $10,000 worth of shares via the Prospectus is the correct one. They have brought to account their net outlay and have given credit for the amount of $10,000 which they would have invested. It would not seem that they are basing their loss under this heading on the position they may have been in had they traded in the $10,000 worth of shares. These two paragraphs will not be struck out.
THE SUBMISSIONS AND MY REASONING IN RELATION TO PARAGRAPHS 119-121
In paragraphs 119 and 120 Mr Jones and Winteroak respectively plead their loss and damage in the alternative as loss of profit claims. The method of calculation, taking Mr Jones’ case as an example, is to calculate the profit which he would have made had he sold his Daytrader shares within the first three days of trading at the average share price after taking into account the amount paid for those shares and also deducting the profit made on the shares actually sold.
The respondents assert that the applicants have not pleaded an arguable cause of action entitling them to a loss of profit claim. They say that the claims for misleading or deceptive statements and conduct under the Corporations Law, and negligence, could only give rise to damages in an amount which would put the applicants in a position they would have been had they not acted in reliance on those statements or conduct. Further, the respondents contend that the claim for breach of contract could not give rise to a claim for loss of profit.
The applicants accept that their pleas in paragraphs 119 and 121 are loss of profit claims. They also accept that the usual measure of damages flowing from a tort claim (being those claims as are referred to in paragraphs 107-109) is that which will put the victim of the tort in the position he or she would have been if the tort had not been committed. However, they point to their claims under the Corporations Law and submit that those claims will be assessed having regard to the provisions of that Act and also to the approaches adopted by the Courts in assessing damages under s 82 of the Trade Practices Act 1974 (Cth). The applicants argue that there is nothing in the relevant provisions of the Corporations Law which would limit the amount recoverable by drawing analogies to damages that would be awarded in an action for deceit – citing Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494.
The respondents, in their submissions in reply, contend that in view of the plea by the applicants in paragraph 50 as to what they would have done had they been informed by Daytrader of the Trading Policy, the only damages which they can “arguably establish” is the difference between their position if they had each invested a maximum of $10,000 compared to their position if they had traded their shares in Daytrader pursuant to the Trading Policy.
Given the views expressed in Marks, I do not think that it can be said that the manner in which the applicants plead their respective alternative claims for damages is so untenable that it should be struck out. Depending upon how the evidence emerges at trial, the loss of profit claim may not be made out, but at this stage I cannot say that it is hopeless.
The pleas made on behalf of Winteroak may require some amendment in the light of the fact that it had no employment contract with Daytrader, the relevant employee being Mr Dinnes.
CONCLUSION
I propose to make an order dismissing the motion with costs. If the applicants seek to amend in relation to Winteroak’s position of not being a party to an employment contract with Daytrader, I will hear that application within the context of a directions hearing in due course, or it can be done by a consent order.
I certify that the preceding seventy-eight (78) numbered paragraphs are a true copy of the Reasons for Judgment herein of Justice Carr. Associate:
Dated: 13 June 2003
The motion was decided on written submissions filed by the parties Solicitor for the Applicants: Messrs Thomson Playford Solicitor for the Respondents: Messrs Bennett & Co Date of last submissions: 28 April 2003 Date of Judgment: 13 June 2003
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