Kadoo Pty Ltd v Tricontinental Corporation Ltd

[1987] FCA 562

C A T C H W O R D S

MORTGAGES - sale by encumbrancee - claim for reconveyance by

beneficiary of trust - trustee the encumbrancer - allegations

of fraudulently misleading Registrar as to existence of power

of sale - no specific allegations impllcating purchasers from

encumbrancee - claim against purchasers dismissed - claim for

relief against encumbrancee allowed to proceed.

Kadoo Pty. Ltd. & Anor.

v. Trlcontlnental Corporatlon Limited & Ors.

Qld G124 of 1987

PINCUS J. BRISBANE 18 SEPTEMBER 1987

IN THE FEDERAL COURT OF AUSTRALIA	)
QUEENSLAND DISTRICT REGISTRY	) QLD G124 of 1987
GENERAL DIVISION	)

BETWEEN: KADOO PTY. LTD.

First Applicant

AND: BARRANBALI PTY. LTD.

Second Applicant

AND: TRICONTINENTAL CORPORATION LIMITED

First Respondent

AND: HARFERN PTY. LTD.

Second Respondent

AND : KALEGO PTY. LTD.

Thlrd Respondent

A N D : ROBERT GOLDSTEIN

Fourth Respondent

AND: FRANK GOLDSTEIN

Fifth Respondent

AND: IAN KENNETH D'ARCY

S i x t h Respondent

AND: ROBERT HARDROSS RUDKIN

Seventh Respondent

MINUTES OF ORDER

JUDGE MAKING PINCUS ORDER: J.

DATE OF ORDER:	18 SEPTEMBER 1	907
WHERE MADE:	BRISBANE
THE COURT ORDERS THAT:

1.	The application be dismissed as against	the 2nd.
3rd, 4th and 5th respondents.

2 . The applicants have leave to deliver an amended

statement of claim against the 1st respondent to be

filed and served on or before 2 October 1987.

3. The applicants pay the costs of the application of the 2nd, 3rd, 4th and 5th respondents, to be taxed.

4. The costs of the application to strike out incurred

by the 1st respondent be taxed and paid by the

applicants.

5. The applicatlon for security for costs made by the

1st respondent be dismissed, the director of the

applicant, Mr. J . W . Quinn, a solicitor, having

given an undertaking to the Court.

6. Costs of the appllcation for securlty be the 1st

respondent's costs In the proceedings.

NOTE:

Settlement and entry of orders is dealt with in

Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA	)
QUEENSLAND DISTRICT REGISTRY	) QLD G124 of 1987
GENERAL DIVISION	)

BETWEEN: W O O PTY. LTD.

First Applicant

AND: BARRANBALI PTY. LTD.

Second Applicant

AND: TRICONTINENTAL CORPORATION LIMITED

First Respondent

AND: HARFERN PTY. LTD.

Second Respondent

AND: KALEGO PTY. LTD.

Third Respondent

AND: ROBERT GOLDSTEIN

Fourth Respondent

AND: F R A N K GOLDSTEIN

Flfth Respondent

AND: IAN KENNETH D'ARCY

Sixth Respondent

AND: ROBERT HARDROSS RUDKIN

Seventh Respondent

PINCUS J. 18 September 1987

M TEMPORE REASONS FOR JUDGMENT

This is an application made by the second, third,

fourth, and fifth respondents to have an application struck out or stayed on the grounds that the statement of claim is embarrassing

or insufficiently particularized, and on another ground

unnecessary to mention.

2 .

The case has also been argued by counsel for the first respondent, who supports the submission made by counsel for the

second to fifth respondents, which 1 s . in essence, that the

statement of claim is defective and, as against the second to

fifth respondents, the claim 1 s vexatious.

"he appllcation was one to which, until recently, there

were seven respondents, the sixth and seventh being solicitors

involved in the transactions	I shall mention. As agalnst them, it
has been discontinued.

The case concerns an encumbrancee's sale of property

owned by a company called Visigoth Pty. Ltd. ("Vlslgoth"), whlch

was not joined. The flrst applicant, Kadoo Pty. Ltd., says that

it 1 s a beneflclary under a trust of which Vlslqoth 1 s trustee,

and it clalms to sue In defence or vlndlcatlon of the rlqhts of

the trust. It 1s plam and, Indeed, not contested, that the

proceedlngs are, In that respect, defectlve because of the absence

of Visigoth from them. I refer to Vo1.48 of the 4th edltlon of

Halsbury, paragraph 933. The submlsslon whlch 1 s made on behalf

of the appllcants, however, is that the absence of Vlslgoth 1 s not

fatal to the proceedings, and I agree with that. It 15,

nevertheless, plainly a matter whlch has to be attended to and

not, in this case at least, merely a formal matter.

The pleadlng is a complex document and it is desirable to summarize its effect rather than set the relevant parts of it

out at length. It says that the first respondent, Tricontinental

Corporation Limited ("Tricontinental"), purporting to do so as

3 .

encumbrancee, sold property for $416,000 which was the subject of

a bill of encumbrance. The statement of claim sets up that the

property was sold by a transfer lodged in the office of the

Registrar of Titles on 18 June 1987 and registered on 19 June

1987. In their application, which was filed on 5 August 1987, the

appllcants claim, among other things, an order whlch is expressed to be one "terminating the effect of the transfer". Counsel for

the appllcants explalned, however, that what was really intended

was to ask for an order for reconveyance. The second and third

respondents presently have the legal title to the land. The

fourth and fifth respondents are persons associated with them.

The presence of the second and third respondents 1s requlred, It

seems to me, If the clalm for reconveyance 1 s to proceed, but a

serlous question arises as to whether the case should be allowed

to go ahead as agalnst any of the second, thlrd, fourth	or flfth
respondents.

The statement of clalm alleges that documents lodged

with the Reglstrar of Tltles to procure reglstration were

factually Incorrect and mlsled the Reglstrar fraudulently, In that

they asserted that there was a default of Vlslgoth at a certam

date when there was not. It seems to be common ground that the

rights of the encumbrancee, Tricontlnental, were governed not only

by the bill of encumbrance but by a deed of settlement of certam

Supreme Court proceedings which affected the rights of the

encumbrancee to sell. The case of the applicants appears at

first sight to be that under the bill of encumbrance as so varied there was no right to sell, although that is not clearly set out

pleading. the in I

4 .

Paragraph 15 of the statement of claim alleges that the

misleading documents caused the Registrar to register the transfer

and that the first applicant, Kadoo Pty. Ltd., thereby lost its

beneflcial interest in the property, being one-thud of the

difference between the market value of the property and its prlce.

It also, so the pleading says, lost Its interest as optionee

pursuant to a lease. Complaint was made of the lack of

specificatlon of the interest as lessee, and that complaint seems

to me well founded, but It is	not a	ma~or	deflciency In the
pleadmg.

My lnltial readlng of the pleading was that the

appllcants intended to allege that there was no power of sale at

all and that the lack of speclflcatlon of that matter was merely a

sllp. However, two clrcumstances have comblned to cause me to

abandon that vlew.

The first is that Mr. Robb, for the appllcants, has

drawn my attentlon to an affldavlt made by Mr. Cocker111 whlch

says that Mr. Cockerill does not wlsh to assert that a sale by

Tricontinental of the land at market value was other than in

accordance with the encumbrancee's rlghts pursuant to the blll of

encumbrance and the deed. As I understand the submisslon of

counsel for the applicants, it seems to be this: that two of the

three beneflclaries under the deed in fact agreed to a sale of a

certaln sort, and the third one would have agreed, and counsel

says It is going to be set up that these facts were so; it	seems
to me if they were so, they should be pleaded.

5.

The second circumstance which caused me to abandon the

vlew I initially took as to the nature of the applicant's case is

that the pleading goes on to complaln of failure to sell to the

second applicant Barranbali Pty. Ltd., which, of course, implies

that there was a power of sale. It turns out, from dlscusslon

between myself and Mr. Robb, that, on the second leg, It 1s Indeed

the case for the applicants that there was a power of sale.

The allegation on the first leg of the case, then, is

that there was a transfer whlch could not have been registered -

there being no power of sale - but for mlsrepresentatlons made to the Registrar. The mlsrepresentatlons were as to the relationshlp between the encumbrancee and the encumbrancer, Vlslgoth.

Of course, lt may occur that a purchaser from a

mortgagee or encumbrancee 1 s aware of the whole of the

clrcumstances surroundlng the sale, but there 1 s no presumptlon

that he 1s so aware, and it would seem to me absolutely contrary

to the scheme of the Real Propertv Act 1861-1986 (Qld.) to allow

speculatlve proceedlngs for reconveyance to be brought agalnst

purchasers from holders of securltles, based upon the mere

posslbility that they were involved In the alleged mlsdeeds of the

vendor.

There are allegations of fraud here. And indeed, so far

as concerns the first respondent, the argument which has been

delivered by Mr. Robb makes it plain that the allegations of fraud

are seriously pressed. They are so pressed, also, as against the

second, third, fourth and fifth respondents, but it seems that

6.

Mr. Sofronoff for those respondents is right in saying that the

case against the purchasers and those associated	with	them is
speculatlve.

I suggested to counsel for the applicants, in the course

of his address, that that seemed to be so and, in effect, Invited

him to tell me If there were substantial facts (although not

pleaded) upon which it was going to be sought to support the case

of fraud agalnst the second to fifth respondents. Counsel ' s

responses have reinforced	my impression that what	Mr. Sofronoff
says 1 s right.

An example of the sort of thlng of which complamt was

made on behalf of the second to flfth respondents 1 s that I t 1 s

sald in paragraph 13 of the statement of clalm that the conduct of

the second and thlrd respondents was caused to be carrled out by

the fourth and flfth respondents, or alternatlvely the fourth and

fifth respondents authorlsed some other person or persons to carry

out the sald conduct, further particulars of whlch cannot be given

untll after dlscovery in this actlon. As another example, ~t 1 s

said i r l paragraph 11 that neither the fourth respondent nor the

fifth respondent belleved that the default mentloned In the papers

was contlnumg, or that there was any other default and this is

all, of course, sald to be fraudulent.

There is in the fairly lengthy and elaborate pleading no

hint that there is any concrete evidence of fraud agalnst the

purchasers, or those associated with them. Mr. Robb spoke of

inferences that might be dram from the circumstances, and the

7.

only particular circumstance he seemed to rely on was that the

contract of sale between the encumbrancee and the purchasers was

settled and a date other than that prescribed by the contract, and

indeed settled earlier.

It is said in the pleading, against the second to fifth

respondents that their solicitor, who was once a party to the

proceedings, knew the facts constitutlng the fraud and told them.

There is, of course, again no lndlcation In the pleading of when

or by what means the informatlon was passed to them,	so as	to
impllcate them m the alleged fraud.

I cannot, I thlnk, lgnore the practlcal conslderatlon

that the prlnclpal purpose of lolnder of the second to third

respondents 1 s to undo the sale to them. If that sale was at an

under-value then, sublect to the questlon of ~olnder of the

encumbrancer, monetary relief	may perhaps be obtamed agalnst the
encumbrancee.

When I raised that question wlth counsel for the

applicants, he Informed me that, for reasons he did not specify, the land was of some speclal value to the appllcants, and I must

accept that for present purposes. Nevertheless I am confronted

with the fact that he has pleaded a shadowy case of fraud agalnst

the purchasers from the encumbrancee, who have become reglstered.

He wants to bolster it, or hopes to do so, by discovery and

perhaps interrogatories and I have, of course, been referred by

the respondents' counsel to the authoritles bearing upon the

propriety of that course. ,

8.

I do not act upon the view that it can never be right

for one having a rather skeletal case of unlawful conduct, and in

particular fraudulent conduct, to plead what is known and then

rely upon dlscovery. There must come a point, however, at whlch

the court would not allow such a case to go further, and despite the able argument advanced on behalf of the appllcants, It seems to me clear enough that the point has been reached here. I do not thlnk the matter should be allowed to proceed agalnst the second to fifth respondents, and the appllcatlon as against them wlll be

struck out. I do not think the pleading demonstrates anything

other than that it 1 s hoped to make a case of fraud agalnst them,

if the facts fall that way, and the discusslon on the facts whlch

I have engaged In wlth counsel for the applicants, so far from

dlspelllng that impresslon, has reinforced It. In one sense, I

suppose the argument 1 s baslcally one about dlscovery - should

applicants be allowed to go to dlscovery, and further pursue the

case, on thls sort of pleadlng; I do not thlnk they should.

There are other aspects of the pleadlng whlch could

be mentloned, but It 1 s perhaps superfluous to do so, because I propose to let the matter proceed agamst the flrst respondent on

a fresh pleading. There will obviously have to be a new pleadlnq

because most of the respondents are now out of the matter, the

case havlng been abandoned against the two solicitors and struck

out as against the second to fifth respondents. I will,

therefore, be brief. The second leg of the case, as presently

pleaded, is a claim that the encumbrancee promised to sell the

land in question to the second applicant, Barranbali Pty. Ltd.

This aspect of the matter 1 s put on two alternative bases. It is

9.

said, firstly, that Tricontinental misrepresented its Intention:

while saying it intended to sell to Barranbali Pty. Ltd., It was

going ahead with the sale to the second to fifth respondents.

Alternatively, a contract of sale between the applicants and

Tricontinental is alleged, a contract whlch Tricontinental

breached by selling to the second and third respondents. As to

the latter point, the argument was put that, since the contract of

sale set up was merely moral, there was no cause of action by

reason of 5.59 of the Propertv Law Act 1974 (Q.) which corresponds

to 5 . 4 of the Statute of Frauds, 1677. It appears to me clear

enough that this point does not avall the respondents. Such a

contract is, of course, merely unenforceable and not vold -

Madison v. Alderson	(1883) A.C. 467 at 488. As Colllns M.R.
pointed out In Fraser	v. (1904) 2 0 T.L.R. 798 at 799, 5.4 of

the Statute of Frauds of 1677 does not go to the merits but merely

deals wlth evldence and the defendant has an optlon wnether or not

to set the section up. The claim cannot be struck out on the

ground of lack of plea of a wrltlnq.

Criticism 1 s also made of the contractuai clalm on the

basls that It is not clear from the pleadlngs what It 1 s that

constitutes the offer by the applicants which 1 s relled on. I

agree that that is so, but agaln that is not a striking-out point,

nor does it seem to me likely to cause any serlous embarrassment

to the respondents.

A more substantial point, to which some reference has

already been made, is that it is unclear what is the applicants'

case as to the power of sale.' During the course of discussion,

10.

counsel for the applicants handed to me proposed additional

paragraphs 14(al, 14(b) and 16(a), which wlll be marked exhibit 1.

But, having heard what he has to say, it is still not clear to me

how the second leg	of	the case is made out, or how he matches it
with the first leg.	I find it difficult to see how a complaint

can be made against the first respondent of the fallure to sell to

the second applicant for $416,000, which in the first branch of

case is said to be an illegal price. It may be that the answer

is, as counsel for the applicants has told me, that those

involved, which he says were the other two beneflciarles under the

trust, simply did not know enough about the value of the property.

But If the second leg of the case depends upon there belng a power

of sale created by assent of beneflciarles, then that has to be

plainly pleaded; otherwlse the pleading is lncomprehenslble.

I do not, however, propose to deal wlth other aspects the matter raised In the course of argument in critlclsm of

of the

present pleadlng; it has to be repleaded In any event, because	of
the absence of nearly all the lnltial respondents.

The orders I propose to make are that the appllcation be

dismissed as agalnst the second, third, fourth and flfth

respondents, and that the applicants have leave to dellver an

amended statement of claim against the first respondent by fillng

and serving the same on or before the second day of October 1987.

As to costs, it will be ordered that the applicants pay

the costs of the second, third, fourth and fifth respondents, to be taxed. The costs of the hearing of the application to strike

.

1   11.