KTC v David
[2022] FCAFC 60
•13 April 2022
FEDERAL COURT OF AUSTRALIA
KTC v David [2022] FCAFC 60
Appeal from: KTC v David (Summary Dismissal) [2020] FCA 1012 File number: NSD 838 of 2020 Judgment of: WIGNEY, ANASTASSIOU AND JACKSON JJ Date of judgment: 13 April 2022 Catchwords: PRACTICE AND PROCEDURE – application for leave to appeal – whether decision of primary judge attended by sufficient doubt to warrant grant of leave – whether substantial injustice would result from a refusal of leave – where interlocutory orders have practical effect of finally determining the rights of a party to proceeding – whether claim involves speculation or conjecture, obviating any purported substantial injustice – leave to appeal granted
PRACTICE AND PROCEDURE – application for leave to file and serve proposed further amended statement of claim – where proceeding involves numerous corporate entities and multiple complex commercial transactions – where proceeding raises questions of fact and law in relation to pleading of a dishonest and fraudulent design under the second limb of so-called rule in Barnes v Addy – relevant principles concerning the amendment and striking out of pleadings and summary dismissal – whether primary judge erred in concluding that claim of knowing assistance in dishonest and fraudulent design was not maintainable – appeal dismissed
Legislation: Corporations Act 2001 (Cth)
Federal Court of Australia Act 1976 (Cth) ss 24(1A), 31A, 31A(2), 37M, 37M(3)
Federal Court Rules 2011 (Cth) rr 16.02, 16.02(1), 16.02(1)(b), 16.02(1)(c), 16.02(1)(d), 16.02(2), 16.02(2)(c), 16.02(2)(d), 16.21, 16.21(1)(c), 16.21(1)(e), 16.42, 16.43, 16.51, 16.53, 26.01
Judiciary Act 1903 (Cth) s 39B
Cases cited: Aardwolf Industries LLC v Tayeh [2020] NSWCA 301
Advanced Holdings Pty Ltd v Commissioner of Taxation (2020) 281 FCR 149; [2020] FCAFC 157
Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788 (2021) 396 ALR 27; [2021] FCAFC 121
Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (1994) 217 ALR 226; [1994] FCA 636
Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43
Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27
Arab Monetary Fund v Hashim (No 2) [1990] 1 All ER 673
Archer Capital 4A Pty Ltd as trustee for Archer Capital Trust 4A v Sage Group plc (No 2) (2013) 306 ALR 384; [2013] FCA 1098
Attorney-General v Wentworth (1988) 14 NSWLR 481
Australian Competition and Consumer Commission v NQCranes Pty Ltd [2021] FCA 1270
Baden v Société Générale pour Favoriser le Développement du Commerce et de l’Industrie en France SA [1992] 4 All ER 161; [1993] 1 WLR 509
Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437
Barclay Mowlem Construction Ltd v Dampier Port Authority & Anor (2006) 33 WAR 82; [2006] WASC 281
Barnes v Addy (1874) LR 9 Ch App 244
Bartlett v Swan Television & Radio Broadcasters Pty Ltd [1995] ATPR 41-434
Spiteri v Nine Network Australia Pty Ltd [2008] FCA 905
Batistatos v Roads and Traffic Authority(NSW) (2006) 226 CLR 256; [2006] HCA 27
Caason Investments Pty Ltd v Cao (2015) 236 FCR 322; [2015] FCAFC 94
Clough & Rogers v Frog (1974) 4 ALR 615
Construction, Forestry, Maritime, Mining and Energy Union v One Key Workforce Pty Ltd [2020] FCAFC 27
Coshott v Official Trustee in Bankruptcy, in the matter of the Bankrupt Estate of Michael Petrovic Lenin (deceased) [2019] FCA 913
Cropper v Smith (1884) 26 Ch D 700
Dalleagles Pty Ltd v Australian Securities Commission (1991) 4 WAR 325
Dare v Pulham (1982) 148 CLR 658
Davidson v Official Receiver [2021] FCAFC 73
Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397; [1991] FCA 844
Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366
Ex parte Bucknell (1936) 56 CLR 221; [1936] HCA 67
Fair Work Ombudsman v Eastern Colour Pty Ltd [2011] FCA 803
Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 230 CLR 89; [2007] HCA 22
Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486; [2012] HCA 39
Fuller v Toms (2012) 247 FCR 440; [2012] FCA 27
Gallo v Attorney-General (Full Court of the Supreme Court of Victoria, 4 September 1984)
Granite Transformations Pty Ltd v Apex Distributions Pty Ltd (2018) 359 ALR 62; [2018] FCA 725
Groom v Crocker [1939] 1 KB 194
Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266
Hastwell v Kott Gunning [2021] FCAFC 70
House v The King (1936) 55 CLR 499; [1936] HCA 40
J C Techforce Pty Ltd & Steinhardt v Pearce, Neville & Oke Industrial Pty Ltd (1996) 138 ALR 522
Johnson Tiles Pty v Esso Australia Pty Ltd (2000) 104 FCR 564; [2000] FCA 1572
KTC v David (No 1) [2019] NSWSC 281
KTC v David (Pleadings) [2019] FCA 1566
KTC v David (Summary Dismissal) [2020] FCA 1012
KTC v Singh & Ors [2018] NSWSC 1510
Mathews v State of Queensland [2015] FCA 1488
Medich v Bentley-Smythe Pty Ltd [2010] FCA 494
Nationwide News Pty Limited v Rush (2020) 380 ALR 432; [2020] FCAFC 115
Nicholson v Morgan (No 3) [2013] WASC 110
Oztech Pty Ltd v Public Trustee of Queensland (2019) 269 FCR 349; [2019] FCAFC 102
Polar Aviation Pty Ltd v Civil Aviation Safety Authority (2012) 203 FCR 325; [2012] FCAFC 97
Rawson Finances Pty Ltd v Commissioner of Taxation [2016] FCAFC 95
Re-Engine Pty Ltd (in liq) v Fergusson (2007) 209 FLR 1; [2007] VSC 57
Research in Motion Ltd v Samsung Electronics Australia Pty Limited (2009) 176 FCR 66; [2009] FCA 320
Samsung Electronics Company Ltd v Apple Inc (2011) 217 FCR 238; [2011] FCAFC 156
Seven Network Limited v News Limited [2005] FCA 142
Shelton v National Roads and Motorists Association Ltd (2004) 51 ACSR 278; [2004] FCA 1393
Spencer v The Commonwealth (2010) 241 CLR 118; [2010] HCA 28
Tamaya Resources Ltd (In Liq) v Deloitte Touche Tohmatsu (A Firm) (2016) 332 ALR 199; [2016] FCAFC 2
Teakle Property Australia v Business Initiatives Pty Ltd [2021] FCA 13
Thomson v STX Pan Ocean Co Ltd [2012] FCAFC 15
Trade Practices Commission v Australian Iron & Steel Pty Ltd (1990) 22 FCR 305
Trade Practices Commission v Pioneer Concrete (Qld) Pty Ltd (1994) 52 FCR 164
Von Reisner v Commonwealth (2009) 177 FCR 531; [2009] FCAFC 97
Webster (Trustee) v Murray Goulburn Co-operative Co. Ltd (No 2) [2017] FCA 1260
Westpac Banking Corporation v Bell Group Ltd (in liq)(No 3) (2012) 44 WAR 1; [2012] WASCA 157
White Industries Aust Ltd v Commissioner of Taxation (2007) 160 FCR 298; [2007] HCA 511
X (Minors) v Bedfordshire County Council [1995] 2 AC 633
Young Investments Group Pty Ltd v Mann (2012) 293 ALR 537; [2012] FCAFC 107
Zibara v Ultra Management (Sports) Pty Ltd (2021) 283 FCR 18; [2021] FCAFC 4
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 446 Date of hearing: 25 February 2021 Counsel for the Appellant: Mr P Collinson QC and Ms M Loughnan QC and Mr C Parkinson SC Solicitor for the Appellant: HWL Ebsworth Counsel for the First Respondent The First Respondent did not appear Solicitor for the First Respondent Russell Kennedy Aitken Lawyers Counsel for the Second and Third Respondents: Mr J Hutton with Mr R Jedrzejczyk Solicitor for the Second and Third Respondents: Ashurst Counsel for the Fourth and Fifth Respondents: Mr A Bannon SC with Ms C Ernst Solicitor for the Fourth and Fifth Respondents: YPOL Lawyers ORDERS
NSD 838 of 2020 BETWEEN: KTC
Appellant
AND: RODRIC DAVID
First Respondent
NAVEEN DAVID SINGH
Second Respondent
XALT PTY LTD (ACN 147 571 033) (and others named in the Schedule)
Third Respondent
ORDER MADE BY:
WIGNEY, ANASTASSIOU AND JACKSON JJ
DATE OF ORDER:
13 APRIL 2022
THE COURT ORDERS THAT:
1.Leave to appeal be granted.
2.The appeal be dismissed.
3.The proceeding as against the first, second and third respondents be remitted to the primary judge.
4.The appellant pay the respondents’ costs of the appeal.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
WIGNEY J:
In July 2018, the applicant in this matter, KTC, commenced a proceeding in the Supreme Court of New South Wales against Mr Rodric David, Mr Naveen Singh, XALT Pty Limited, a company of which Mr Singh is the sole director and shareholder, Mr Andrew Bullock and the law firm of which Mr Bullock was a partner, Gilbert + Tobin (G+T). KTC alleged, in short summary, that Mr David and a company associated with him had engaged in a dishonest and fraudulent design which had caused it economic loss and that Mr Singh, XALT, Mr Bullock and G+T had knowingly assisted in that fraudulent design. KTC’s statement of claim, however, was struck out by Kunc J in the Supreme Court of New South Wales and the proceeding was transferred to this Court. KTC did not fare any better in this Court. The primary judge twice refused KTC’s applications to file a further amended statement of claim. KTC applied for leave to appeal the second judgment of the primary judge that dismissed its application to file a further amended statement of claim and dismissed the proceeding as against Mr Bullock and G+T.
I have had the advantage of reading, in draft form, the reasons for judgment to be published by Anastassiou J. His Honour has concluded that the primary judge erred in refusing to grant leave to KTC to file a further amended statement of claim, that leave to appeal should be granted, the appeal be allowed and that KTC be granted leave to file a further amended statement of claim in the form tendered at the hearing before the primary judge. I gratefully adopt much of Anastassiou J’s detailed analysis of the factual background, the judgment of the primary judge and the submissions of the parties. I regret, however, that I do not share his Honour’s conclusion that the primary judge erred in refusing KTC’s application. While I have some misgivings about some aspects of the primary judge’s reasoning, I have concluded that the primary judge was ultimately right to refuse KTC’s application. That is because the proposed pleading would, if filed, be liable to be struck out on the basis that it is ambiguous, is likely to cause embarrassment and prejudice, and ultimately fails to disclose a reasonable cause of action against Mr Bullock and G+T.
I would grant leave to appeal but dismiss the appeal.
PROCEDURAL BACKGROUND
KTC has had many attempts at drafting a pleading which articulates its case against Mr Bullock and G+T in a way which is capable of withstanding a strike-out application.
The following short summary of the relevant procedural background is drawn from an affidavit sworn by a solicitor acting on behalf of G+T. While KTC objected, albeit faintly, to the affidavit on the grounds of relevance, the procedural background is to some extent relevant to the question of whether the primary judge’s exercise of the discretion to refuse leave to file the proposed amended pleading miscarried as KTC contended. The factual background would also appear to be relatively uncontentious.
In the Supreme Court
The first iteration of KTC’s pleading against Mr Bullock and G+T was filed in the Supreme Court on 25 July 2018. KTC applied for freezing orders against Mr Singh, XALT and others shortly after the filing of the pleading. That application was dismissed by White J in the Supreme Court: KTC v Singh & Ors [2018] NSWSC 1510.
On 24 October 2018, Mr Bullock and G+T applied to strike out the pleading against them. On 22 February 2019, KTC applied for and was granted leave to file an amended statement of claim. That second iteration of the pleading was then the subject of the strike-out application. On 18 March 2019, Kunc J in the Supreme Court struck out the amended statement of claim and transferred the proceeding to this Court: KTC v David (No 1) [2019] NSWSC 281.
In striking out the pleading, Kunc J noted (at [24]) that the “Court resolutely rejects an approach to pleading which entails the indiscriminate recitation of large numbers of facts and detailed but insignificant particulars combined with rolled up conclusions, and which is then defended on the basis that at the end of the hearing at least one of the causes of action can be expected to have been established”. His Honour also observed (at [48]) that KTC and its representatives bore a “serious onus” and that, as the case that KTC wished to plead involved allegations of fraud against Mr Bullock, it was required to be “properly pleaded and particularised”. In that context, Kunc J said (at [50]) that “the question of what Mr Bullock is alleged to have known (in the relevant sense) that would have indicated that the breach [by Mr David] was a dishonest and fraudulent design will require particular attention”. His Honour rejected a submission advanced on behalf of G+T that leave to re-plead should not be granted and stated (at [47]) that KTC should be given a “final opportunity” to plead its case.
In this Court
On 26 April 2019, KTC filed an interlocutory application in this Court seeking leave to file an amended statement of claim. The interlocutory application annexed what was, by that stage, the third iteration of KTC’s pleading. Prior to the hearing of the interlocutory application, however, KTC served a fourth iteration of its pleading. The leave application was heard and determined on the basis of that fourth iteration of the pleading.
On 24 September 2019, the primary judge dismissed KTC’s interlocutory application: KTC v David (Pleadings) [2019] FCA 1566 (the pleadings judgment). His Honour ordered KTC to file and serve any “final application for leave to amend” by 5 November 2019.
The pleadings judgment is not the judgment that is the subject of this application for leave to appeal. It concerned a different iteration of the pleading to the pleading that is the subject of this application. It is, in those circumstances, unnecessary to consider the pleadings judgment in detail. There are, however, three aspects of the judgment that should be noted.
First, the key difficulties with the pleading which led the primary judge to dismiss the application were that there was no clear or explicit pleading that the alleged breaches of fiduciary duty were part of a dishonest and fraudulent design (see in particular [17]-[19]) and no clear or explicit pleading that Mr Bullock and G+T had requisite knowledge of any dishonest and fraudulent design (see in particular [21]-[24]). His Honour did, however, appear to accept (at [34]) that there was a “trial to be had” in respect of the allegation that Mr Bullock and G+T had the requisite knowledge because “[t]here is something quite striking about these transactions and one’s interest can only be piqued by the fact that G+T is alleged to have advised that it was lawful”. More will be said about those observations later.
Second, the primary judge concluded (at [52]) that the proposed pleading – in its then current form – breached r 16.02(1)(b) and (c) and r 16.02(2)(d) and (c) of the Federal Court Rules 2011 (Cth). His Honour reasoned that the pleading breached r 16.02(1)(b), which provides that the pleading must “be as brief as the nature of the case permits”, because it was “at least three times as long as it needs to be”; it breached r 16.02(1)(c), which provides that the pleading must “identify the issues that the party wants the Court to resolve”, because it “obscures rather than identifies the issues”; it breached r 16.02(2)(d), which provides the pleading must not be “likely to cause prejudice, embarrassment or delay in the proceeding”, because “it is certain to cause prejudice and embarrassment”; and it breached r 16.02(2)(c), which provides a pleading must not “be evasive or ambiguous”, because “it is incomprehensible” . His Honour had earlier noted (at [48]), in that regard, that “the pleading is in many parts simply incomprehensible” and that it had taken him “an entire week to understand its arcane obscurities”.
Third, in the context of determining that KTC should be given one final chance to file a satisfactory pleading, his Honour (at [52]) implored those advising KTC to “have a long think about the next version and how it is drafted” and noted that “[o]ne view might be that it is beyond repair in its current form”. It would seem from what followed that his Honour’s pleas in that regard were not heeded.
On 5 November 2019, KTC filed an interlocutory application seeking leave to file a further amended statement of claim in the form annexed to that application. This was the fifth iteration of the pleading, or proposed pleading. KTC served a sixth iteration of the proposed pleading shortly prior to the hearing of the interlocutory application. A seventh iteration of the proposed pleading was provided to the primary judge at the hearing of the interlocutory application. It was that seventh iteration which was the subject of the judgment of the primary judge and the primary focus of attention on this application for leave to appeal.
On 17 July 2020, the primary judge dismissed KTC’s application, ordered KTC to pay the costs of Mr Bullock and G+T and dismissed the proceedings against Mr Bullock and G+T: KTC v David (Summary Dismissal) [2020] FCA 1012 (Judgment). The primary judge’s reasons for making those orders will be considered in detail later in these reasons.
LEAVE TO APPEAL
Mr Bullock and G+T opposed the grant of leave to appeal. I do not propose to dwell at length on the question of leave. Like Anastassiou J, I would grant leave to appeal.
It is well accepted that an applicant for leave to appeal must generally demonstrate: first, that the decision in question is “attended with sufficient doubt to warrant its being reconsidered by the Full Court”; and second, that “substantial injustice would result if leave were refused, supposing the decision to be wrong”: Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397; [1991] FCA 844 at 398; Advanced Holdings Pty Ltd v Commissioner of Taxation (2020) 281 FCR 149; [2020] FCAFC 157 at [35]; Davidson v Official Receiver [2021] FCAFC 73 at [15]. While those two criteria may not represent a “hard and fast rule” (Samsung Electronics Company Ltd v Apple Inc (2011) 217 FCR 238; [2011] FCAFC 156 at [29]), they nevertheless provide “general guidance which the Court should normally accept”: Rawson Finances Pty Ltd v Commissioner of Taxation [2016] FCAFC 95 at [39].
As for the first of the two Décor criteria, it is clear that, to secure leave to appeal, the applicant does not have to demonstrate that its proposed grounds of appeal are likely to succeed, or even that it has strong grounds. It need only be demonstrated that there is sufficient doubt about the correctness of the judgment to warrant appellate reconsideration. KTC’s proposed grounds of appeal and its submissions in support of those grounds are substantial and not so obviously weak or untenable that it can be said that there are insufficient doubts about the judgment of the primary judge to warrant the grant of leave to appeal. The issues surrounding the proposed pleading and the primary judge’s reasons for refusing leave are complex and difficult and require close attention.
As for the second Décor criteria, it may generally be accepted that an applicant for leave to appeal an interlocutory decision is likely to suffer substantial injustice, supposing the decision to be wrong, if the decision has the practical effect of finally determining the rights of the parties, or determines “a substantive right”: Décor at 400. Those circumstances generally provide a prima facie case, or at least a strong ground, for the grant of leave to appeal: Ex parte Bucknell (1936) 56 CLR 221 at 225-226; Construction, Forestry, Maritime, Mining and Energy Union v One Key Workforce Pty Ltd [2020] FCAFC 27 at [44]; Hastwell v Kott Gunning [2021] FCAFC 70 at [26], citing Johnson Tiles Pty v Esso Australia Pty Ltd (2000) 104 FCR 564; [2000] FCA 1572 at [43]; Aardwolf Industries LLC v Tayeh [2020] NSWCA 301 at [1], [54] and [87]. The judgment of the primary judge plainly had the practical effect of finally determining the rights of the parties. It resulted in the dismissal of KTC’s claim against Mr Bullock and G+T.
Mr Bullock and G+T submitted that KTC would not suffer any substantial injustice if leave to appeal were refused, even supposing that the primary judge’s decision was wrong. That submission was put on two bases.
First, it was said that KTC had had ample opportunity to properly plead its case in the circumstances. Both Kunc J in the Supreme Court and the primary judge had given KTC further opportunities and yet, so it was submitted, the pleading remained deficient and incoherent.
Second, it was submitted that the claimed injustice to KTC arising from the effective summary dismissal of their application was no more than conjecture or speculation. That was said to be the case because KTC has already recovered a substantial portion of its claimed losses arising from the transactions impugned in this proceeding as a result of its success in proceedings commenced in the Grand Court of the Cayman Islands. It was also submitted, in effect, that KTC’s case against Mr Bullock and G+T was speculative and unlikely to succeed in any event. Mr Bullock and G+T relied on the reasoning of Steward J (with whom Allsop CJ and Bromwich J agreed) in Advanced Holdings at [35]-[70] in support of the proposition that the loss of a chance or opportunity which was no more than “conjecture or speculation” would not constitute a substantial injustice.
The contention that KTC would suffer no substantial injustice if leave to appeal was refused, even if the primary judge’s decision was incorrect, may be dealt with shortly.
First, it would appear to be common ground that KTC sought and obtained relief in the Grand Court which goes some considerable way towards righting the wrongs which KTC alleges were committed by Mr David. That relief included an order which effectively reversed an issue of shares which KTC seeks to impugn in this proceeding, as well as an order which had the effect of providing KTC with recompense in respect of another impugned transaction. The proceeding in the Grand Court did not, however, involve Mr Bullock or G+T. It is not possible to entirely rule out, at least on the basis of the material put before this Court, that KTC may be able to obtain some additional or incremental relief or recompense from Mr Bullock and G+T in respect of the impugned transactions, assuming that KTC is able to properly plead its case against them. The potential loss of the ability to seek and obtain any such additional or incremental relief can fairly be characterised as a substantial injustice.
Second, for the Court to be satisfied that KTC’s claim against Mr Bullock and G+T amounted to no more than conjecture or speculation, the Court would in effect have to determine the issues that arise on the appeal. KTC’s arguments in relation to the appeal are not so obviously unmeritorious that the Court could proceed at the leave stage on the basis that KTC’s claims against Mr Bullock and G+T are speculative or a matter of conjecture.
The grant of leave to appeal is appropriate in all the circumstances.
OVERVIEW OF KTC’S CASE AGAINST MR BULLOCK AND G+T
The primary judge gave a helpful overview of KTC’s case against Mr Bullock and G+T in the pleadings judgment at [4]-[12]. That overview is extracted in full in the reasons of Anastassiou J. The Judgment also includes an overview of the dispute as pleaded at [4]-[12]. It is, however, nonetheless useful to briefly outline the key factual allegations made by KTC and the asserted legal basis of the claims against Mr Bullock and G+T.
The following overview derives primarily from the Proposed Further Amended Statement of Claim (PFASC or proposed pleading) which was the subject of the Judgment under appeal.
The key factual allegations
The central players in the saga which is the subject matter of the proposed pleading are Mr Charif Kazal, his brother Mr Tarek Kazal (together the Kazals), Mr David, Mr Singh and Mr Bullock.
The Kazals owned all of the shares in, and were directors of, KTC: PFASC [2]. KTC was a company registered in the Cayman Islands: PFASC [1].
Mr David was the sole director and shareholder in RAAL Limited, also a company registered in the Cayman Islands: PFASC [3]-[4].
Mr Singh was the sole director and shareholder of both Singh Investments Limited and XALT. Singh Investments was a Cayman Islands registered company, whereas XALT was a company registered pursuant to the Corporations Act 2001 (Cth): PFASC [5]-[7].
Mr Bullock was a partner of G+T: PFASC [8]-[9].
In September 2008, Emergent Capital Limited (Emergent or ECL) was registered as a company in the Cayman Islands: PFASC [10]-[11]. Emergent had authorised share capital of 50,000 shares with a par value of US$1.00, though only 100 shares were initially issued. Of those 100 shares, KTC held 50 shares and RAAL held 50 shares. Emergent’s directors were the Kazals (holding one vote jointly) and Mr David: PFASC [11].
KTC alleges that at about the time of the registration of Emergent, it and RAAL entered into an oral (and partly implied) joint venture agreement, the terms of which relevantly included that: Emergent would (as the joint venture vehicle) carry on the business of investments; KTC and RAAL would hold the equity in Emergent in equal shares and be equally represented on the board of Emergent; and RAAL and Mr David would act for, and on behalf of, KTC in the management of KTC’s interests in the joint venture: PFASC [11]-[13].
Global Renewables Australia Pty Ltd, a company registered in Australia, was the holding company of a group of companies which owned a waste facility at Eastern Creek, a suburb of Sydney: PFASC [14]. In about December 2008, Emergent and Singh Investments agreed that Emergent would invest in the waste facility, albeit indirectly through a company registered in the Cayman Islands: PFASC [17].
In December 2008, Global Renewables Limited was registered in the Cayman Islands. Emergent was the registered holder of 80 of the 100 issued shares in Global Renewables and Singh Investments was the registered holder of 20 issued shares: PFASC [17]. Mr David and Mr Singh were the directors of Global Renewables.
In January 2009, Global Renewables acquired all the shares in Global Renewables Australia: PFASC [17(d)].
Both KTC and RAAL advanced funds to Emergent by way of unsecured loans: see PFASC [21]. KTC alleges that by November 2009 it had loaned Emergent A$600,000: PFASC [21(a)]. RAAL claimed to have loaned Emergent approximately A$5.8 million, though KTC alleges that that claim was disputed: PFASC [21(b)] and [26(b)].
On 13 November 2009, Mr Nikolaos Mavromanolakis was appointed to the board of Emergent: PFASC [22]. There is no allegation that Mr Mavromanolakis’ appointment was contentious, or that KTC or the Kazals did not know about, or did not agree with, the appointment.
The issue of 49,900 Emergent shares to RAAL
KTC alleges that at some point between November 2009 and December 2009, Mr David and RAAL sought and obtained legal advice from Mr Bullock. That legal advice is alleged to have concerned “the reduction of part of [Emergent’s] indebtedness to RAAL for a share issue to RAAL to effectively eliminate KTC’s interest in [Emergent]”: PFASC [23(a)].
A critical allegation in KTC’s case is that, in November and December 2009, Mr Bullock gave Mr David, RAAL, Mr Mavromanolakis and Emergent advice to the effect that: Mr David had to do everything possible to protect Emergent so as to protect his and RAAL’s investment in Emergent; “the only available action was for RAAL to demand repayment of its loans to [Emergent] and when no payment was made to dilute KTC’s shareholding”; and “such action was the right and the legal thing to do”: PFASC [23(b)]. The advice was given orally and in an email dated 17 November 2009: particulars to PFASC [23]. It is defined in the pleadings as the “G+T Legal Advice”. KTC alleges that it and the Kazals were unaware of the G+T Legal Advice until 2018: PFASC [24].
I should perhaps interpolate at this point that the proposed pleading repeatedly employs the device of applying definitions or labels to various pleaded events or circumstances and then utilising those definitions throughout the pleadings. That type of pleading device can sometimes serve to shorten and simplify a pleading. When used excessively, however, as it is in the pleading the subject of this appeal, the effect may be to destroy the narrative and obscure and confuse critical factual and legal issues. In the pleading currently under consideration, the excessive and indiscriminate use of defined events and circumstances renders the pleading confusing, ambiguous and, in parts, almost impenetrable.
Returning to the narrative, on about 20 January 2010, Emergent and RAAL executed a loan agreement that recorded that RAAL had loaned Emergent A$5,837,009.04: PFASC [25]. KTC alleges that Mr David executed the loan agreement without informing it or the Kazals and in the knowledge that they disputed the loan: PFASC [26].
On 21 January 2010, Mr David signed a letter on behalf of RAAL which demanded that Emergent pay RAAL US$49,900 within seven days, failing which RAAL would accept US$49,900 worth of fully paid ordinary shares in Emergent in satisfaction of the debt: PFASC [27]. KTC alleges that it and the Kazals were not informed about, and remained unaware of, the letter of demand: PFASC [29].
The following day, Mr David called a meeting of the board of Emergent: PFASC [28]. The meeting was to take place on 28 January 2010 – that is, upon expiry of the seven-day period referred to in the letter of demand. KTC does not allege that the Kazals did not receive notice of the Emergent board meeting called by Mr David.
KTC alleges that it and the Kazals remained unaware that Mr David intended to move on a motion at the board meeting which would result in Emergent issuing 49,900 shares to RAAL in accordance with the letter of demand: PFASC [28], [35].
The meeting of the board of Emergent took place by telephone on 28 January 2010. It was attended by Mr David and Mr Mavromanolakis: PFASC [30]. It was not attended by either of the Kazals. It was resolved at the meeting that Emergent would issue 49,900 shares to RAAL in consideration of the satisfaction of Emergent’s indebtedness to RAAL in the sum of US$49,900: PFASC [31]. Those shares were subsequently issued: PFASC [34].
KTC alleges that at no time prior to the passing of the resolution at the board meeting did either Emergent, Mr David, Mr Mavromanolakis or RAAL obtain a valuation of Emergent shares: PFASC [32]. It also alleges that the resolution was “caused and procured” by Mr David and RAAL and that Mr David “procured” Mr Mavromanolakis’ support for the resolution: PFASC [38].
On about 18 March 2010, KTC and the Kazals were sent a copy of the minutes of the Emergent board meeting and thereby became aware of the resolution passed at that meeting: particulars to PFASC [35]. The Kazals and KTC subsequently disputed the validity of the resolution and the share issue: PFASC [36].
On 29 March 2010, the Kazals were removed as directors of Emergent: PFASC [37].
KTC alleges that the effect of the issue of 49,900 Emergent shares to RAAL was that KTC’s shareholding in Emergent was reduced from 50% to 0.1%, RAAL’s shareholding was increased from 50% to 99.9% and Emergent’s debt to RAAL pursuant to the loan agreement executed on 20 January 2010 was reduced by only 0.93%: PFASC [39].
The issue of 60 shares in Global Renewables to Singh Investments
On 22 April 2010, the directors of Global Renewables, Messrs David and Singh, resolved to issue 60 ordinary “fully paid” shares in Global Renewables to Singh Investments for an issue price of US$1.00 per share: PFASC [41]. Those shares were subsequently issued: PFASC [41].
KTC alleges that the resolution passed on 22 April 2010 and the subsequent share issue was “procured” by Mr David and RAAL: PFASC [42]. Perhaps more significantly, it alleges that shares in Global Renewables were a “valuable asset” and that there was no consideration for the issue of the shares to Singh Investments: PFASC [44]-[45].
The effect of the issue of 60 shares in Global Renewables to Singh Investments is alleged to have been that: Singh Investments’ total shareholding in Global Renewables was increased from 20 to 80, meaning that it held 50% of the issued shares; Emergent’s total holding remained at 80 shares, but its interest in Global Renewables was reduced from 80% to 50%; and Emergent had “divested 30% of its interest in [Global Renewables] … in circumstances where no benefit accrued to [Emergent] from the transaction”: PFASC [46].
Sale of Emergent’s shareholding in Global Renewables
In December 2010, Ironbridge Capital Pty Ltd acquired all of the shares in Global Renewables, including Emergent’s 80 shares (50% shareholding), for A$25 million: PFASC [60]. The pleading contains further factual allegations concerning this sale, though it is unnecessary for present purposes to address those facts in any detail. It suffices to note that in October 2010 KTC had made a non-binding indicative offer to acquire 100% of the Global Renewables shares for A$25.5 million and a non-binding indicative and conditional offer to purchase Emergent’s shares in Global Renewables for A$15 million. Those offers were rejected by Mr David and RAAL, on behalf of Emergent, in favour of the offer by Ironbridge Capital: PFASC [57].
The Cayman Islands proceedings
The pleading makes scattered references (including in the particulars) to proceedings commenced in the Cayman Islands. The Cayman Islands proceedings would appear to be relevant to at least some of the allegations against Mr Bullock and G+T. The relevant facts or allegations concerning the proceedings that may be gleaned from the pleading are as follows.
On 21 May 2010, KTC applied to the Grand Court for the winding up of Emergent and the appointment of provisional liquidators: PFASC [48]. On 2 June 2021, the Grand Court dismissed the application for the appointment of a provisional liquidator on the undertaking that RAAL would not exercise any voting rights, including in respect of its Emergent shares and Mr David would not exercise his powers as a director of Emergent without the prior written consent of KTC or the leave of the Grand Court: PFASC [49].
On 4 October 2010, the Grand Court, on the application of RAAL, ordered that Mr David be permitted to exercise his powers as a director of Global Renewables and Emergent in order to “consider and conclude” the sale of Emergent’s shares in Global Renewables to Ironbridge Capital: PFASC [54]-[55].
In about January 2011, KTC and RAAL filed a joint petition in the Grand Court applying for the liquidation of Emergent to be brought under the supervision of the Grand Court: particulars to PFASC [128]. In June 2011, the Grand Court ordered that the joint petition proceed as if it were a writ between KTC and RAAL in respect of the validity of the resolution of the Emergent board passed on 28 January 2010 and the subsequent issue of 49,900 Emergent shares to RAAL. On 23 November 2011, the Grand Court found that the resolution and share issue were made in breach of Mr David’s and Mr Mavromanolakis’ fiduciary duty and ordered that liquidators be directed to rectify Emergent’s register of members to reflect the fact that KTC and RAAL each owned 50 shares in Emergent: see particulars to PFASC [128(a)]. The register was subsequently rectified.
Key factual allegations against Mr Bullock and G+T
The legal basis of KTC’s claim will be addressed next. It would be useful, however, to briefly summarise the key factual allegations against Mr Bullock and G+T. It will be necessary to address the sufficiency of the particulars of these allegations in more detail later.
The key allegations against Mr Bullock and G+T would appear to be as follows.
First, it is alleged that G+T was retained by, and Mr Bullock provided legal services, to Global Renewables, Emergent, RAAL and Mr David “in respect of” certain things, including: the drafting of the loan agreement between Emergent and RAAL; “providing a strategy to deal with KTC’s refusal to contribute funding” to Emergent which was equal to the funding provided by RAAL; various draft Global Renewables shareholders agreements which were prepared between January 2009 and March 2010; the resolution of the Emergent board on 28 January 2009 and the subsequent issue of Emergent shares; and the issue of Global Renewables shares to Singh Investments in April 2010: PFASC [72]-[73].
It should perhaps be noted at this stage that the particulars of the provision of these legal services in the pleading are in most cases inadequate, unclear and ambiguous. The particulars extend little beyond indicating that G+T rendered invoices to Global Renewables for legal services between January 2009 and May 2010. Those particulars tend to suggest that G+T only provided legal services to Global Renewables, not Emergent, RAAL, Mr Mavromanolakis or Mr David as is otherwise alleged. The allegation that G+T, pursuant to its retainer with Global Renewables, provided legal services to anyone other than Global Renewables is at best ambiguous. More significantly, it is entirely unclear when the particular legal services were provided and what those legal services in fact entailed or involved. More will be said about this later.
Second, it is alleged that in or about November and December 2009, Mr Bullock gave the G+T Legal Advice to Mr David, Mr Mavromanolakis, RAAL and Emergent: PFASC [23] and [72(c)]. That advice allegedly included that it was the “right thing and the legal thing” for RAAL to demand repayment of the loan it had made to Emergent and, when no payment was made, to “dilute KTC’s shareholding”: PFASC [23(b)]. More will be said about the G+T Legal Advice later in these reasons. It suffices at this point to note that the advice was allegedly given many weeks before Mr David sent the letter of demand, called the meeting of the Emergent board and voted (along with Mr Mavromanolakis) in favour of the issue of shares to RAAL. Perhaps more significantly, it is not alleged that the advice included advice that it would be “right” or “legal” for RAAL and Mr David to call a meeting of the Emergent board without advising the Kazals of the resolution concerning the share issue which was to be moved at the meeting.
Mr Bullock’s (and G+T’s) state of mind and knowledge at the time that the G+T Legal Advice was allegedly given is critical to KTC’s case against Mr Bullock and G+T. It should perhaps be noted at this point, however, that there is some suggestion in [72(c)] of the pleading that Mr Bullock and G+T may have provided additional legal advice to RAAL, Mr David and Mr Mavromanolakis to the effect that the “ECL Share issue was lawful”. The particulars to that allegation, however, simply refer back to [23] of the pleading and therefore indicate or imply that there was no separate advice about the lawfulness of the relevant transaction. If there was separate legal advice provided, the proposed pleading contains no particulars whatsoever in respect of that advice.
Third, it is alleged that Mr Bullock “assisted in preparing the documentation to effect” the resolution which was passed at the meeting of the Emergent board on 28 January 2010: PFASC [72(d)] and [73]. The particulars provided in relation to this allegation are again wholly inadequate. It is entirely unclear precisely what assistance was provided and when it was provided. More will be said about this later.
Fourth, it is alleged that Mr Bullock (and therefore G+T) advised Global Renewables, Emergent, RAAL and Mr David that it was “lawful to make” the issue of 60 shares in Global Renewables to Singh Investments: PFASC [72(e)]. That allegation, which is again a critical plank in KTC’s case against Mr Bullock and G+T, is discussed in more detail later in these reasons. It suffices at this point to note that the particulars provided in relation to the allegation are again wholly inadequate. KTC alleges, in summary, that the fact that Mr Bullock gave this advice is to be inferred from the fact that he was retained to advise in relation to various draft Global Renewables shareholders agreements, one of which fleetingly refers to the Global Renewables share issue.
Fifth, it is alleged that Mr Bullock “assisted in preparing the documentation to effect the making of” the Global Renewables share issue to Singh Investments: PFASC [72(f)]. Once again, the particulars provided in relation to this critical allegation are wholly inadequate and amount to little more than identifying invoices that G+T rendered to Global Renewables. It is entirely unclear what the assistance comprised of and when it was provided. It is not even entirely clear what documents were the subject of the alleged assistance.
Sixth, it is alleged that “at all material times” Mr Bullock knew about certain events or circumstances: PFASC [74]. The particular events or circumstances that Mr Bullock is alleged to have known about relevantly include that: the “G+T Legal Advice” was not disclosed to the Kazals; the Kazals did not know about and did not consent to the resolution to issue Emergent shares to RAAL at any time prior to 28 January 2010; Emergent, RAAL and Mr David did not inform the Kazals or KTC, at any time prior to 28 January 2010, of the G+T Legal Advice, or that the resolution to issue Emergent shares to RAAL was to be considered at the board meeting on 28 January 2010, or that Mr David had “procured [Mr Mavromanolakis’] support” for the vote in respect of that resolution; Emergent, RAAL and Mr David did not obtain any valuation of the shares in Emergent at any time before 28 January 2010; the issue to Singh Investments of 60 shares in Global Renewables was made without the consent or knowledge of KTC and the Kazals; and Singh Investments paid no consideration for the 60 shares issued to it, or if it did, that consideration was “colourable or illusory”.
Those allegations of knowledge on the part of Mr Bullock will be discussed in detail later. It suffices here to again note that the particulars provided in relation to what, in the circumstances, amount to very serious allegations against Mr Bullock are unsatisfactory in many respects. More significantly, there is a serious issue as to whether the particulars disclose a reasonable basis, or reasonable case, in respect of the allegations.
The asserted legal basis of the claims against Mr Bullock and G+T
It was and is essentially common ground that the primary legal basis of the claims against Mr Bullock and G+T is to be found in the so-called second limb of the rule in Barnes v Addy: see Barnes v Addy (1874) LR 9 Ch App 244.
The second limb of Barnes v Addy concerns the circumstances in which a third party (the defendant) may be liable in respect of a breach of fiduciary duty by another person in circumstances where the defendant does not receive any property arising from the breach. The principles relevant to such a claim are fairly well settled, at least in Australia, and may be summarised in a few short propositions. Those propositions were identified by Kunc J in KTC v David at [19] and, save in perhaps two minor respects, are not controversial or in issue in this proceeding. The propositions are as follows.
First, the defendant may be liable if they knowingly procured or induced the breach of fiduciary duty. It is unnecessary to consider this form of liability as KTC does not allege that Mr Bullock and G+T are liable on this basis. There is no allegation of inducement.
Second, the defendant may also be liable if the defendant assists in the breach of fiduciary duty with knowledge that the breach was a “dishonest and fraudulent design”: Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 230 CLR 89; [2007] HCA 22 at [160]-[163], [179]; Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266 at [74]-[75], [78]-[79], [106]-[100], [122]-[125].
Third, the “assistance” or “participation” provided by the defendant must be “facilitative conduct or activity which is more than mere knowledge or notice of the breach of duty”: Re-Engine Pty Ltd (in liq) v Fergusson (2007) 209 FLR 1; [2007] VSC 57 at [117].
Fourth, the defendant’s “knowledge” must be one of five kinds: “actual knowledge”; “wilfully shutting one’s eyes to the obvious”; “wilfully and recklessly failing to make such inquiries as an honest and reasonable [person] would make”; “knowledge of circumstances which would indicate the facts to an honest and reasonable [person]”; or “knowledge of circumstances which would put an honest and reasonable [person] on inquiry”: Farah at [174]-[178], citing Baden v Société Générale pour Favoriser le Développement du Commerce et de l’Industrie en France SA [1992] 4 All ER 161 at 235, 242–3.
The two propositions that require some further consideration are the one that requires there to be a “dishonest and fraudulent design” and the one that concerns “assistance”.
As to the former, KTC submitted that the state of the law in Australia concerning the meaning of a “dishonest and fraudulent design” is unsettled, largely as a result of the judgment of Drummond AJA (with whom Carr AJA relevantly agreed) in Westpac Banking Corporation v Bell Group Ltd (in liq)(No 3) (2012) 44 WAR 1; [2012] WASCA 157 at [2112]-[2125]. It is, however, unnecessary to give this issue any detailed consideration. It suffices to say that the preponderance of authority now is that the reasoning of Drummond AJA in Bell as to the meaning of “dishonest and fraudulent design” should not be followed and that “dishonesty” in this context means, in essence, “a transgression of ordinary standards of honest behaviour”: Hasler at [124] (Leeming JA with whom Gleeson JA agreed at [9]-[10]; Barrett JA not deciding at [4]); see also Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43 at [71] (Gageler J); Zibara v Ultra Management (Sports) Pty Ltd (2021) 283 FCR 18; [2021] FCAFC 4 at [103], [107] (McKerracher and Anderson JJ) and [254] (Derrington J).
The proposition concerning assistance may also be dealt with shortly. KTC submitted that a solicitor can relevantly assist a dishonest and fraudulent design by drafting agreements which give effect to that design. KTC relied, in support of that submission, on the decision of the House of Lords in Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366. That case primarily concerned issues of vicarious liability and contribution. It may nevertheless be accepted that a solicitor can assist a dishonest and fraudulent design by drafting documents which facilitate or give effect to that design. As the reasoning of Lord Nicholls of Birkenhead in Dubai Aluminium (at 381) makes clear, however, that assistance will only “give rise to equitable liability” on the part of the solicitor when it is “coupled with dishonesty”; that is, where the solicitor knows (in the requisite sense) that the documents that he or she is drafting are in furtherance of a dishonest and fraudulent design. The solicitor in question in Dubai Aluminium was alleged to have been a party to a criminal conspiracy.
KTC alleges that Mr Bullock assisted in the breaches of fiduciary duties by Mr David with knowledge that the breaches were, or formed part of, a dishonest and fraudulent design. As will be seen, however, there is a considerable degree of ambiguity in the pleading as to whether there was a single dishonest and fraudulent design, or a number of separate and distinct dishonest and fraudulent designs that together made up an overarching dishonest and fraudulent design. Putting that issue to one side for the moment, the allegations against KTC and Mr Bullock mainly relate to two transactions, both involving share issues, which are said to involve dishonest breaches of fiduciary duties that Mr David owed to KTC.
The first transaction is the issue of 49,900 Emergent shares to RAAL which was the subject of the Emergent board meeting on 28 January 2010. The conduct engaged in by Mr David and the breaches of fiduciary duty resulting from it is defined in the pleading as the “David ECL Share Conduct”: PFASC [77]. The David ECL Share Conduct is alleged to have constituted a fraudulent and dishonest design: PFASC [77].
The second transaction is the issue of 60 Global Renewables shares to Singh Investments which was the subject of the Global Renewables board meeting on 22 April 2010. The conduct engaged in by Mr David and the breaches of fiduciary duty resulting from it is defined in the pleading as the “David GRL Share Conduct”: PFASC [78]. The David GRL Share Conduct is also alleged to have constituted a fraudulent and dishonest design: PFASC [78].
KTC alleges that Mr Bullock and G+T assisted Mr David “with the David ECL Share Conduct and the David GRL Share Conduct and the dishonest breaches of duties [that are alleged to have been committed by reason of that conduct] as part of a dishonest and fraudulent design”: PFASC [98]. It may be noted that the allegations as pleaded at [98] involve assisting a single dishonest and fraudulent design, though both the David ECL Share Conduct and the David GRL Share Conduct are also alleged to constitute dishonest and fraudulent designs. The conduct allegedly engaged in by Mr Bullock and G+T which is said to amount to assistance will be discussed in more detail later. It suffices at this point to note that it involves allegedly giving legal advice and assisting in preparing documents to effect those two share issues.
KTC also alleges that Mr Bullock and G+T “knew that they were engaged in conduct to further the David ECL Share Conduct, the David GRL Share Conduct and the dishonest breaches of his fiduciary duties … as part of a dishonest and fraudulent design”: PFASC [99]. It may again be noted that the allegations as pleaded at [99] involve knowledge in respect of a single dishonest and fraudulent design. The knowledge allegedly possessed by Mr Bullock and G+T which is said to constitute knowledge that Mr David’s breaches of duty were, or were part of, a dishonest and fraudulent is discussed in further detail later. It suffices at this point to note that the critical allegation is that Mr Bullock either “wilfully shut his eyes” to the obvious conclusion that, amongst other things, the legal advice that he gave in respect of the two relevant share issues was wrong (PFASC [75]), or alternatively that he had “knowledge of circumstances which would have indicated to an honest and reasonable person” that the legal advice he had given was wrong: PFASC [76]. As discussed later, KTC expressly disclaims any allegation that Mr Bullock actually knew that his legal advice was wrong.
There is also a third category of conduct relevant to the allegations against Mr Bullock and G+T. The third category of conduct appears to be pleaded in the alternative. KTC alleges that RAAL held all or half of the 49,900 shares issued to it on 28 January 2010 on constructive trust for KTC “as a knowing recipient of property obtained by breach of fiduciary duty”: PFASC [126]. In those circumstances, RAAL is alleged to have owed duties to KTC as constructive trustee. Those duties included a duty to transfer those shares to KTC or a duty to have Emergent rectify its register: PFASC [127]. KTC alleges that in failing to do either of those things, RAAL breached those duties: PFASC [128(a)]. It is also alleged that RAAL breached its duties by using its control of Emergent to the detriment of KTC by subsequently procuring the issue of Global Renewables shares to Singh Investments and later still causing Emergent to sell its Global Renewables shares to Ironbridge Capital rather than KTC. Those breaches of duties are alleged to have constituted a dishonest and fraudulent design on the part of RAAL. RAAL’s dishonest and fraudulent design is defined in the proposed pleading as the “Constructive Trust Fraudulent Scheme”: PFASC [129].
As for Mr Bullock and G+T, KTC alleges that they “assisted RAAL with the Constructive Trust Fraudulent Scheme and the dishonest breaches of trust … as part of a dishonest and fraudulent design”: PFASC [145]. The conduct allegedly engaged in by Mr Bullock and G+T which is said to amount to assistance in respect of this dishonest and fraudulent design is essentially the same as the conduct relied on in respect of the other alleged dishonest and fraudulent designs: giving legal advice and assisting in preparing documents in respect of the share issues to RAAL and Singh Investments: PFASC [144]-[149].
KTC also alleges that Mr Bullock and G+T “knew of the Constructive Trust Fraudulent Scheme” and that Mr Bullock knew that “he was engaged in conduct to further the Constructive Trust Fraudulent Scheme and the dishonest breaches of trust … as part of a dishonest and fraudulent design”: PFASC [146]. The particulars provided in support of those allegations are the same as those relied on in respect of Mr Bullock’s alleged knowledge of the other dishonest and fraudulent design or designs relating to the share issues themselves: PFASC [74]-[76].
JUDGMENT OF THE PRIMARY JUDGE
The reasons for judgment of Anastassiou J set out the primary judge’s decision and reasoning in considerable detail. It suffices, in those circumstances, to make the following brief points about the primary judge’s findings and reasons.
The essential reason given by the primary judge for refusing to grant KTC leave to file the proposed pleading was that it contained allegations against Mr Bullock and G+T which would be liable to be struck out: Judgment at [5]. His Honour made four critical findings which led to that conclusion.
First, his Honour found that the allegation that Mr Bullock and G+T advised Global Renewables and others that it was lawful to allot 60 Global Renewables shares to Singh Investments was “not adequately supported by the subscribed particulars to it”: Judgment at [19]. As noted earlier, KTC’s case that Mr Bullock gave that advice was based on an inference allegedly flowing from the fact that Mr Bullock had been retained to assist or advise in relation to other documents, one of which referred to the share issue. After carefully analysing each of the documents (see Judgment at [15]), the primary judge in effect concluded that the alleged inference was not open: Judgment at [16]-[17].
Second, the primary judge found that the allegation that Mr Bullock and G+T knew that the allotment of 60 Global Renewables shares to Singh Investments was for no consideration was not supported or supportable by the particulars provided in the pleading: Judgment at [20]-[24]. His Honour concluded that it was not possible to draw that inference simply from the fact that Mr Bullock had provided advice in relation to the funding of Global Renewables by RAAL and KTC, or from the fact that Mr Bullock had prepared and provided advice in respect of certain documents, including the resolution that was passed at the April 2010 Global Renewables board meeting: Judgment at [20]-[24].
Third, the primary judge noted that the parties had proceeded on the basis that the issues which arose in relation to the “ECL Share Conduct” were the same as those that arose in relation to the “GRL Share Conduct” and that he would “act on that assumption too”: Judgment at [24]. His Honour did not expand on that assumption or what flowed from it, though it would appear that it effectively amounted to a finding that the allegations concerning Mr Bullock’s knowledge of, and advice in relation to, the issue of 49,900 shares to RAAL on 28 January 2010 were not supported by the particulars. That appears from the next paragraph of his Honour’s reasons, where it is noted that “the consequence of the conclusions in the preceding section is that the allegation that G+T advised that the Emergent and [Global Renewables] share issues were lawful is not maintainable”: Judgment at [25].
Fourth, the primary judge concluded that the so-called Constructive Trust Fraudulent Scheme was “fundamentally incoherent”: Judgment at [40]. His Honour’s reasons for so concluding hinged essentially on the finding that the facts and circumstances surrounding the issue of 49,900 Emergent shares to RAAL on 28 January 2010 could not be said to demonstrate any dishonesty. His Honour reasoned that the decision to issue the shares could not be considered to involve any dishonesty given that it was not alleged that the other director who voted in favour of the resolution to issue the shares, Mr Mavromanolakis, had acted improperly, or had been duped or lied to by Mr David. His Honour concluded that in those circumstances, while what occurred might well have involved a breach of fiduciary duty which might be described as “aggressive”, “highhanded”, or even “brutal”, it could not be described as dishonest: Judgment at [38]-[39].
It should perhaps be noted that, while the primary judge’s finding that the pleadings did not adequately articulate or particularise a case of dishonesty in relation to the issue of 49,900 Emergent shares to RAAL occurred in the context of his Honour’s consideration of the Constructive Trust Fraudulent Scheme, the effect of the finding is that the allegations in the pleading concerning the dishonesty of the David ECL Share Conduct also cannot be sustained. Those allegations, which culminate in the allegations against Mr Bullock and G+T at [98] and [99] of the pleading, are premised on the allegation that Mr David’s breaches of fiduciary duty in respect of the Emergent share issue were dishonest. His Honour effectively found that that allegation could not be sustained.
The primary judge accordingly concluded, in effect, that the pleading did not disclose a reasonable case against Mr Bullock and G+T and that no further opportunity should be afforded to KTC to file a pleading that did. Indeed, his Honour concluded that “KTC’s continuing inability to plead the case is a potential marker that it does not have a case against G+T”: Judgment at [42]. His Honour accordingly dismissed the proceeding against Mr Bullock and G+T: Judgment at [43].
APPEAL GROUNDS AND NOTICE OF CONTENTION
KTC filed, as it was required to do under r 35.12(2)(d) of the Rules, a draft notice of appeal annexed to its application for leave to appeal. Mr Bullock and G+T filed a notice of contention. Given the grant of leave to appeal, the draft notice of appeal may be taken to have been filed as the notice of appeal.
KTC’s draft notice of appeal
KTC’s draft notice of appeal contains 16 grounds of appeal. Those grounds of appeal essentially challenge seven aspects of the primary judge’s findings or reasons.
Grounds 1 and 2 challenge the primary judge’s finding (Judgment at [24]) that the parties had proceeded on the basis that the issues which arose in relation to the “ECL Share Conduct” (that is, the conduct relating to the issue of the Emergent shares) were the same as those that arose in respect of the “GRL Share Conduct” (that is, the conduct relating to the issue of the Global Renewables shares). KTC contended that the issues were not the same and that the primary judge therefore erroneously conflated the issues relating to the two share issues and should have separately considered them.
Grounds 3 to 5 challenge the primary judge’s finding to the effect that, while Mr David’s conduct in relation to the issue of 49,900 Emergent shares to RAAL may have involved breaches of his fiduciary duty, it did not involve any dishonesty. KTC contended that that finding was wrong, that the fact that Mr Mavromanolakis was not lied to or duped did not mean that the conduct could not be dishonest and that the primary judge should have found that the pleading disclosed a reasonable case that the conduct concerning the Emergent share issue constituted a dishonest and fraudulent scheme.
Grounds 6 and 7 challenge the primary judge’s findings in respect of the Constructive Trust Fraudulent Scheme. KTC contended that the pleading discloses that that conduct constituted a dishonest and fraudulent design even if, as the primary judge found, the conduct concerning the issue of Emergent shares could not be said to be a dishonest and fraudulent scheme.
Grounds 8 and 9 challenge the primary judge’s finding that the particulars in the pleading were inadequate to support an inference that Mr Bullock and G+T advised that it was lawful to issue 60 Global Renewables shares to Singh Investments. KTC contended that the primary judge should have found that the pleading disclosed a reasonable cause of action in that regard.
Grounds 10 and 11 would appear to involve the contention that the primary judge, having found that the pleading did not disclose a reasonable case that Mr Bullock and G+T advised that the issue of Global Renewables shares to Singh Investments was lawful, then failed to address an additional or alternative element of KTC’s case. That additional element was that Mr Bullock and G+T could be found to have assisted Mr David’s breaches of duty in respect of the Global Renewables share issue on the basis that they assisted in the preparation of documents in respect of that share issue.
Grounds 12 to 14 challenge the primary judge’s finding that the particulars in the pleading were incapable of supporting the pleaded inference that Mr Bullock and G+T knew that no consideration was paid in respect of the 60 Global Renewables shares that were issued to Singh Investments. KTC contended that the primary judge should have found that a reasonable case in respect of that allegation was disclosed in the pleading.
Grounds 15 and 16 contend that, even if the proposed pleading did not disclose a reasonable case against Mr Bullock and G+T, the primary judge should nevertheless have granted leave to file the pleading against the other respondents, Mr David, Mr Singh and XALT, none of whom opposed the grant of leave.
Mr Bullock and G+T’s notice of contention
The notice of contention filed by Mr Bullock and G+T contains three grounds. Those grounds, read together, appear to attack the allegation in the pleading that Mr Bullock wilfully shut his eyes to the obvious conclusion that the legal advice that he had given – to the effect it was lawful to issue 49,900 Emergent shares to RAAL and lawful to issue 60 Global Renewables shares to Singh Investment – was wrong. The main thrust of the challenge to this aspect of the pleading is that it is incoherent to, on the one hand, disclaim any allegation that Mr Bullock actually knew that his advice was wrong, and yet on the other hand assert that he wilfully shut his eyes to the correctness of his own advice. Mr Bullock and G+T contended that, in effect, the proposed pleading simply asserted that Mr Bullock was negligent.
RELEVANT PRINCIPLES – STRIKING OUT AND SUMMARY DISMISSAL
It is useful, before addressing the appeal grounds and the merits of the primary judge’s judgment generally, to address some of the relevant principles concerning the amendment and striking out of pleadings and summary dismissal. The parties gave limited attention to those principles.
The effect of rr 16.51 and 16.53 of the Rules is that, other than in circumstances not applicable to this case, a party must apply for the leave of the Court to amend a pleading.
The Court’s power to grant leave to amend is broad and has the remedial objective of ensuring that any defect in the pleadings is cured and that the real questions in the controversy are properly agitated: Caason Investments Pty Ltd v Cao (2015) 236 FCR 322; [2015] FCAFC 94 at [20] (Gilmour and Foster JJ); Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 at [14]. The power must be exercised in a “way that best promotes the Court’s overarching purpose to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible”: Caason at [19] and the cases cited therein; s 37M(3) of the Federal Court of Australia Act 1976 (Cth) (FCA Act). The object of the Court is “not to punish parties for mistakes made in the conduct of their case, but to correct errors with the result that a decision can be made on the real matters in controversy”: Clough & Rogers v Frog (1974) 4 ALR 615 at 618, quoting Cropper v Smith (1884) 26 Ch D 700 at 710; Caason at [20].
Leave to amend should generally be granted unless the proposed amendment is futile, including, for example, because the issue sought to be raised by the amendment has no reasonable prospects of success, or would be liable to be struck out as not raising a reasonable cause of action, or where the amendment would cause substantial prejudice or injustice to the opposing party in a way that cannot be compensated by the award of costs: Research in Motion Ltd v Samsung Electronics Australia Pty Limited (2009) 176 FCR 66; [2009] FCA 320 at [21]-[22]; Medich v Bentley-Smythe Pty Ltd [2010] FCA 494 at [8]; Caason at [21].
The primary judge refused to grant KTC leave to amend the pleading essentially because the proposed amended pleading, if permitted to be filed, would be liable to be struck out. It is accordingly necessary to have regard to the rules and principles relating to the striking out of pleadings.
The starting point is r 16.02(1) and (2) of the Rules which specifies the general requirements for a pleading. It provides as follows:
(1) A pleading must:
(a)be divided into consecutively numbered paragraphs, each, as far as practicable, dealing with a separate matter; and
(b)be as brief as the nature of the case permits; and
(c)identify the issues that the party wants the Court to resolve; and
(d)state the material facts on which a party relies that are necessary to give the opposing party fair notice of the case to be made against that party at trial, but not the evidence by which the material facts are to be proved; and
(e)state the provisions of any statute relied on; and
(f)state the specific relief sought or claimed.
(2) A pleading must not:
(a)contain any scandalous material; or
(b)contain any frivolous or vexatious material; or
(c)be evasive or ambiguous; or
(d)be likely to cause prejudice, embarrassment or delay in the proceeding; or
(e)fail to disclose a reasonable cause of action or defence or other case appropriate to the nature of the pleading; or
(f)otherwise be an abuse of the process of the Court.
In relation to the requirement in r 16.02(1)(d) that the pleading state the “material facts” relied on, it has been said that material facts must be pleaded with a degree of specificity which is sufficient to convey to the opposite party the case that that party has to meet and that a “bare conclusion” is ordinarily not a proper allegation: Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (1994) 217 ALR 226; [1994] FCA 636 at 235. A pleading that “simply pleads a conclusion is embarrassing and should not be permitted to stand”: Young Investments Group Pty Ltd v Mann (2012) 293 ALR 537; [2012] FCAFC 107 at [7].
It is also relevant in this case to have regard to r 16.42 of the Rules, which provides that a party who pleads fraud, misrepresentation, unconscionable conduct, breach of trust, wilful default or undue influence, must state in the pleading particulars of the facts on which the party relies. There could be little doubt that an allegation that a person has assisted another person to breach a fiduciary duty with knowledge that the breach was a dishonest and fraudulent design falls within this rule.
Putting r 16.42 to one side, it is in any event “fundamental, and long established, that if a case of fraud is to be mounted, it should be pleaded specifically and with particularity”: Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486; [2012] HCA 39 at [26].
Rule 16.21 of the Rules provides, in effect, that a pleading that fails to meet any of the requirements in r 16.02 may be struck out. It provides as follows:
(1)A party may apply to the Court for an order that all or part of a pleading be struck out on the ground that the pleading:
(a)contains scandalous material; or
(b)contains frivolous or vexatious material; or
(c)is evasive or ambiguous; or
(d)is likely to cause prejudice, embarrassment or delay in the proceeding; or
(e)fails to disclose a reasonable cause of action or defence or other case appropriate to the nature of the pleading; or
(f)is otherwise an abuse of the process of the Court.
Rules 16.02 and 16.21 must be interpreted and applied in light of s 37M of the FCA Act, which in summary provides that the overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible.
The word “vexatious” in the context of rules such as r 16.21 is an “omnibus expression” that includes material which is scandalous, discloses no reasonable cause of action, is oppressive or embarrassing, or the inclusion of which is otherwise an abuse of the processes of the Court: Gallo v Attorney-General (Vic) (Full Court of the Supreme Court of Victoria, Starke J, with whom Crockett and Beach JJ agreed at [12], 4 September 1984), referred to with approval in Mathews v State of Queensland [2015] FCA 1488 at [87]. Material in a pleading would also be considered to be vexatious or frivolous if it was included in the pleading with the intention of annoying or embarrassing, or for a collateral purpose, or if it raises matters that are “obviously untenable or manifestly groundless”: Attorney-General v Wentworth (1988) 14 NSWLR 481 at 491; see also Von Reisner v Commonwealth (2009) 177 FCR 531; [2009] FCAFC 97 at [27].
A pleading is likely to cause prejudice or embarrassment, for the purposes of r 16.21(1)(d) of the Rules, if it is susceptible to various meanings, contains inconsistent allegations, includes various alternatives which are confusingly intermixed, contains irrelevant allegations or includes defects which result in it being unintelligible, ambiguous, vague or too general: Bartlett v Swan Television & Radio Broadcasters Pty Ltd [1995] ATPR 41-434; Spiteri v Nine Network Australia Pty Ltd [2008] FCA 905 at [22]; Fair Work Ombudsman v Eastern Colour Pty Ltd [2011] FCA 803 at [18]; Shelton v National Roads and Motorists Association Ltd (2004) 51 ACSR 278; [2004] FCA 1393 at [18]. Such a pleading could equally be characterised as evasive or ambiguous for the purposes of r 16.21(1)(c) of the Rules.
A pleading may be considered to be embarrassing if it suffers from narrative prolixity or irrelevancies to the point that it is not a pleading to which the other party can reasonably be expected to plead to: Fuller v Toms (2012) 247 FCR 440; [2012] FCA 27 at [80]-[84]. A party cannot be expected to respond to mere context, commentary, “history, narrative material or material of a general evidentiary nature”: Fuller v Toms at [83].
A pleading may also be struck out as embarrassing if it is plain that the pleading party cannot lawfully call any evidence at the hearing to substantiate the pleading: J C Techforce Pty Ltd & Steinhardt v Pearce, Neville & Oke Industrial Pty Ltd (1996) 138 ALR 522 at 531.
A “reasonable cause of action”, for the purposes of r 16.21(1)(e) of the Rules, is a cause of action that has some chance of success having regard to the allegations pleaded: Polar Aviation Pty Ltd v Civil Aviation Safety Authority (2012) 203 FCR 325; [2012] FCAFC 97 at [42]-[43]. A cause of action cannot be struck out merely on the basis that it appears to be weak: Allstate at 236.
If substantial parts of a pleading are struck out, the Court may strike out the entire pleading on the basis that the “residue would be confusing”: Trade Practices Commission v Australian Iron & Steel Pty Ltd (1990) 22 FCR 305 at 323.
Normally the power to strike out should be exercised only in plain and obvious cases, where no reasonable amendment could cure the alleged defect or deficiency: Allstate at 236. The power is discretionary and should be employed sparingly and only in a clear case “lest one deprive a party of a case which in justice it ought to be able to bring”: Trade Practices Commission v Pioneer Concrete (Qld) Pty Ltd (1994) 52 FCR 164 at 175.
The application which was before the primary judge was an application to amend, not an application for summary dismissal. The effect of the orders made by his Honour was, however, effectively to summarily dismiss the proceedings commenced by KTC, at least insofar as Mr Bullock and G+T were concerned. It is, in those circumstances, useful to have regard to some of the principles that apply in relation to summary dismissal.
Subsection 31A(2) of the FCA Act relevantly provides that the Court may give judgment for a party if the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding. Rule 26.01 of the Rules, which also deals with summary judgment, provides that a party may apply to the Court for an order that judgment be given against another party on grounds that essentially mirror the grounds for striking out a pleading in r 16.21 of the Rules.
The relevant principles in relation to summary judgment or dismissal under s 31A of the FCA Act were considered by the High Court in Spencer v The Commonwealth (2010) 241 CLR 118; [2010] HCA 28 and have been discussed in numerous judgments in this Court. They may be summarised as follows.
First, s 31A of the FCA Act authorises summary disposition of proceedings “on a variety of bases under its general rubric”, including, but not limited to: where the pleading discloses no reasonable cause of action and the deficiency in that regard is “incurable”; where “there is unanswerable or unanswered evidence of a fact fatal to the pleaded case and any case which might be propounded by permissible amendment”; and the “longstanding category of cases which are ‘frivolous or vexatious or an abuse of process’”: Spencer at [22] (French CJ and Gummow J).
Second, the power to summarily dismiss a proceeding is to be distinguished, in its application to deficient pleadings, from rules such as r 16.21 of the Rules: Spencer at [23] (French CJ and Gummow J). Where the evidence shows that a person may have a reasonable cause of action or reasonable prospects of success, but the person’s pleading does not disclose that to be the case, the Court may be empowered to strike out the pleading under r 16.21, but is not empowered to summarily dismiss the proceeding under s 31A of the FCA Act: see White Industries Aust Ltd v Commissioner of Taxation (2007) 160 FCR 298; [2007] HCA 511 at [47], referred to in Spencer at [23]. That said, a “failure after ample opportunity to plead a reasonable cause of action may suggest that none exists and therefore that the applicant has no reasonable prospects of success”: White Industries at [47].
Third, an applicant may have no reasonable prospect of successfully prosecuting the proceeding even if it cannot be concluded that the proceeding is hopeless or bound to fail: Spencer at [17] (French CJ and Gummow J). The inquiry required under s 31A is “not an enquiry directed to whether a certain and concluded determination could be made that the proceeding would necessarily fail”: Spencer at [52] (Hayne, Crennan, Kiefel and Bell JJ).
Fourth, the “exercise of powers to summarily terminate proceedings must always be attended with caution”, whatever may be the basis upon which that disposition is sought: Spencer at [24] (French CJ and Gummow J). It is not a power “to be exercised lightly”: Spencer at [60] (Hayne, Crennan, Kiefel and Bell JJ). There must be a “high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way”: Batistatos v Roads and Traffic Authority(NSW) (2006) 226 CLR 256; [2006] HCA 27 at [46], referred to in Spencer at [24] (French CJ and Gummow J).
ANALYSIS OF THE PROPOSED PLEADING
I propose to address the merits of the grounds of appeal and notice of contention in the course of analysing the adequacy of the pleading generally.
Upon close analysis, the proposed pleading against Mr Bullock and G+T, which involves serious allegations of fraud and dishonesty, is manifestly defective and deficient on a number of fronts. It is, in critical parts, opaque, obscure and ambiguous. Critical allegations are frequently expressed in bare conclusionary terms, or are unsupported by meaningful particulars, or supported by prolix particulars that, upon analysis, provide no reasonable basis for the allegation they are said to support. The proposed pleading is, in short, a proverbial dog’s breakfast.
The proposed pleading calls to mind the observations of French CJ, Gummow, Hayne and Kiefel JJ in Forrest (at [27]) that the task of the pleader “does not extend to planting a forest of forensic contingencies and waiting until final address or perhaps even an appeal hearing to map a path through it”. The proposed pleading lays a minefield, rather than plants a forest, of forensic contingencies to the point that it would be unfair and oppressive to require Mr Bullock and G+T to plead to it. It is no easy task to map a path through that minefield. What follows is my best attempt.
The alleged dishonest and fraudulent designs
Given that the essence of the case against Mr Bullock and G+T is that they assisted in a breach of fiduciary duty with knowledge that the breach was, or was part of, a dishonest and fraudulent design, the obvious starting point is to endeavour to identify from the pleading exactly what is said to constitute the alleged dishonest and fraudulent design. That is no mean feat in the case of the proposed pleading. On my analysis, there are at least six possible dishonest and fraudulent designs alleged in the pleading and it is somewhat unclear precisely which of those designs were allegedly knowingly assisted by Mr Bullock and G+T.
The first dishonest and fraudulent design is the one defined as the David ECL Share Conduct: PFASC [77]. The conduct that is said to constitute the David ECL Share Conduct was discussed in some detail earlier. The point to note for present purposes is that that conduct, and the dishonest breaches of duty said to arise from that conduct, is itself said to constitute a dishonest and fraudulent design: PFASC [80].
The second dishonest and fraudulent design is the one defined as the David GRL Share Conduct: PFASC [78]. The conduct said to constitute the David GRL Share Conduct was also discussed in detail earlier. That conduct, and the dishonest breaches of duty said to arise from that conduct, is also itself said to constitute a dishonest and fraudulent design: PFASC [80].
The third dishonest and fraudulent design is defined as the David GRL Share Sale: PFASC [79]. The David GRL Share Sale conduct encompasses Mr David’s role in ultimately causing shares in Global Renewables to be sold to Ironbridge Capital in December 2010, rather than to KTC. That conduct is also said to constitute a separate dishonest and fraudulent design: PFASC [80].
The fourth dishonest and fraudulent design is defined as the David Fraudulent Scheme: PFASC [80]. It is constituted by the combined conduct involved in the David ECL Share Conduct, the David GRL Share Conduct and the David GRL Share Sale: PFASC [80].
The fifth dishonest and fraudulent design arises from the way in which the critical allegations of knowing assistance are worded in [98] and [99] of the proposed pleading. To make the point, it is necessary to set out those paragraphs of the proposed pleading in full.
By giving the G+T Legal Advice and advice that it was lawful to make the ECL Share Issue, and by giving legal advice that it was lawful to make the GRL Share Issue, and by assisting in preparing the documentation to effect those transactions, Bullock and G+T assisted David with the David ECL Share Conduct and the David GRL Share Conduct and the dishonest breaches of his fiduciary duties as set out in paragraph 82 above as part of a dishonest and fraudulent design.
By reason of the matters in paragraphs 74, 75 and 76 Bullock and G+T knew that they were engaged in conduct to further the David ECL Share Conduct, the David GRL Share Conduct and the dishonest breaches of his fiduciary duties as set out in paragraph 82 above as part of a dishonest and fraudulent design.
(Underlining, denoting proposed amendment, in original)
For the reasons I have expressed, I consider that leave to appeal should be granted, appeal grounds 3 to 14 allowed and the orders made by the primary judge on 17 July 2020 set aside. I would also make orders that KTC be afforded a further opportunity to amend its pleading in accordance with these reasons, but only in relation to matters that are directed to clarification and not otherwise of substance.
I certify that the preceding one hundred and eighty-one (181) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Anastassiou. Associate:
Dated: 13 April 2022
REASONS FOR JUDGMENT
JACKSON J:
I have had the considerable benefit of reading, in draft, the judgments of both Wigney J and Anastassiou J.
I agree with each of their Honours that leave to appeal should be granted for the reasons their Honours give. I also agree with Wigney J that the affidavit to which his Honour refers at [5] is relevant and should be admitted into evidence.
I have, however, come to the conclusion that the appeal should be dismissed. Unfortunately, and with respect to both of my colleagues on this bench, that is not because I agree entirely with the judgment of Wigney J, and nor is it because I disagree entirely with the judgment of Anastassiou J. That is especially unfortunate because it requires yet another judgment to navigate the tortuous terrain of the PFASC (I will use the defined terms in Wigney J’s judgment). I will try to do so as briefly as possible, and to the extent possible by reference to Wigney J’s and Anastassiou J’s reasons, with which I will assume familiarity.
G+T are alleged to be liable to KTC because they are said to have knowingly assisted in dishonest and fraudulent schemes involving breaches of fiduciary duties perpetrated and committed by Mr David and RAAL (where I refer to G+T that includes a reference to Mr Bullock). I agree with Wigney J for the reasons his Honour gives that the way in which the pleading identifies at least six dishonest and fraudulent schemes is itself embarrassing. But that cannot dispose of the appeal, as it was not raised before the primary judge and was not the subject of a notice of contention in this appeal.
For present purposes, and in so far as G+T are concerned, the dishonest and fraudulent schemes centred around two transactions: the issue of shares in Emergent to RAAL in January 2010 and the issue of shares in Global Renewables to Singh Investments in April 2010.
Issue of shares in Global Renewables: pleading of G+T’s knowledge
For reasons that will become apparent, I will start with the transaction that is later in time. I respectfully agree with Wigney J and the primary judge that, for the reasons their Honours each give, the plea that G+T knew that Singh Investments paid no or colourable consideration for the issue of shares in Global Renewables in April 2010 lacks particulars that are capable of supporting it.
I also agree with their Honours that it follows that this plea of knowledge is not maintainable. I agree with Wigney J’s summary of the relevant principles, but on the plea of knowledge would emphasise the following propositions:
(1)Two important functions of pleadings and particulars are to furnish a statement of the case that is sufficiently clear to allow the other party a fair opportunity to meet it and to define the issues for decision in the litigation: Dare v Pulham (1982) 148 CLR 658 at 664.
(2)In general, and in the context of modern case management principles, the courts do not take a technical or restrictive approach to pleadings: Thomson v STX Pan Ocean Co Ltd [2012] FCAFC 15 at [13], citing Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82 at [4]‑[8].
(3)But where fraud is pleaded, or something analogous to it such as knowing participation in a dishonest and fraudulent design, a rigorous approach will still be taken: see Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at [170]; Forrest v Australian Securities and Investments Commission [2012] HCA 39; (2012) 247 CLR 486 at [26]; Young Investments Group Pty Ltd v Mann [2012] FCAFC 107 at [9].
(4)Rule 16.43 of the Federal Court Rules 2011 (Cth) provides that a party who pleads a condition of mind, which includes knowledge, must state in the pleading particulars of the facts on which the party relies.
(5)Even in the absence of a rule of that kind, there are sound reasons for requiring knowledge to be particularised, at least in relation to allegations such as fraud or intentional participation in the breach of another: see Young Investments at [11].
(6)That requires particulars of the facts and circumstances from which it is said that the party knew (or ought to have known) the relevant matter. Those facts may include an admission or communication from which it must follow that the relevant party had the relevant knowledge. Or they may include facts and circumstances from which it can be inferred that the party had the knowledge: see Young Investments at [10]; Webster (Trustee) v Murray Goulburn Co-Operative Co Ltd (No 2) [2017] FCA 1260 at [6].
In the present case, and fundamentally then, G+T are entitled to a pleading that puts them on notice of alleged communications (whether to or from G+T) that indicate that G+T knew of Mr David’s and RAAL’s alleged dishonest and fraudulent schemes, or of facts or circumstances from which it can be inferred that they knew of them. For the reasons given by Wigney J and the primary judge, the PFASC fails to put G+T on notice of either of those things in relation to the key allegation that they knew the issue of shares in Global Renewables was for no or colourable consideration, so as to give G+T a fair opportunity to prepare their case.
In the absence of particulars of that kind, the bare plea of knowledge cannot stand. I agree with Anastassiou J’s observations (made in the course of deciding whether to grant leave to appeal) that there are inevitably limits to the ability of any pleading to capture in writing inferences of fact and wrongdoing, where those conclusions are distilled from a multiplicity of objective facts and disputed events. But in my view, the way in which KTC has pleaded that G+T knew relevant matters is fundamentally deficient. I agree with Wigney J that this applies not just to KTC’s allegations as to G+T’s actual knowledge of the specific matters alleged at PFASC para 74, but also to its allegations as to the knowledge of dishonest and fraudulent schemes, at two of the four levels of knowledge described in Baden v Société Générale pour Favoriser le Développement du Commerce et de l’Industrie en France SA [1993] 1 WLR 509; [1992] 4 All ER 161, namely wilful blindness and knowledge of circumstances that would have indicated the truth to an honest and reasonable person.
As such, the PFASC does not disclose a reasonable case against G+T in relation to knowing assistance with respect to the issue of shares in Global Renewables that took place in April 2010. I will return below to the consequences of that for the purposes of this appeal. But first it is necessary to deal with the preceding transaction that is impugned, namely the issue of shares in Emergent in January 2010.
Issue of shares in Emergent: pleading of dishonest and fraudulent scheme
For the reasons given by Anastassiou J, and with respect, I consider that the primary judge erred in concluding that the PFASC does not disclose a case to the effect that the issue of shares in Emergent involved a dishonest and fraudulent scheme. The primary judge focussed on the role of the third director of Emergent, Mr Mavromanolakis, who voted in favour of the issue of shares in January 2010. His Honour also focussed on the absence of any allegation that Mr Mavromanolakis was dishonest or was duped. But it is still possible, on the facts pleaded, that there was a dishonest or fraudulent design. KTC pleads that Mr David concealed from the Kazals and KTC the fact that the board of Emergent was going to vote on the resolution to issue the shares: PFASC para 38(c). Such concealment, in all the other circumstances pleaded, if established, might be found to be dishonest and might be found to have led to the issue of the shares. The proper characterisation of Mr David’s conduct in that regard (and that of RAAL) can only be reached after a trial that allows full consideration of the evidence.
Issue of shares in Emergent: pleading of G+T’s knowledge
I respectfully disagree with Anastassiou J, however, that this disposes of KTC’s appeal. Even if the PFASC does plead a reasonable case that Mr David and RAAL engaged in a dishonest and fraudulent design in respect of the January 2010 issue of shares in Emergent, as against G+T, it is still necessary to plead a reasonable case that the firm knowingly participated in that design.
Contrary to KTC’s submissions on appeal, I do not consider that the primary judge had no difficulty with the pleading of the knowing assistance component of the case concerned with the January 2010 issue of shares in Emergent. It is true that this aspect of the pleading was not the subject of any detailed reasoning on the part of the primary judge, and is not the subject of any ground of appeal. But the primary judge did reach a conclusion on it. His Honour did so, in very brief terms, by saying (at [24]) that the parties both proceeded on the basis that the issues that arose in relation to the allegations about Mr David’s and RAAL’s conduct concerning the issue of shares in Emergent in January 2010 were the same as those that arose in relation to the allotment of shares in Global Renewables, and that his Honour would also proceed on that basis. I agree with Wigney J that this amounted to a finding that the allegations concerning G+T’s knowledge of and advice in relation to the January 2010 issue of shares in Emergent were not supported by the particulars. That is why it has been convenient to deal with the allegations of G+T’s knowledge of the April 2010 issue of shares in Global Renewables before dealing with the earlier issue of shares in Emergent.
I agree with Wigney J and with Anastassiou J, for the reasons their Honours give, that grounds of appeal 1 and 2, which attack the primary judge’s approach at [24], must fail. That being so, his Honour must be taken to have determined that G+T’s knowledge of the dishonest and fraudulent scheme or schemes involving the issue of shares in Emergent in January 2010 has not been adequately particularised, for reasons similar to his Honour’s reasons in relation to knowledge of the April 2010 issue of shares in Global Renewables.
Presumably because KTC took the view that the primary judge had not reached a conclusion, it did not advance any case on appeal going to the substance of the point, that is, to whether G+T’s knowledge of the facts that made the issue of shares in Emergent part of a dishonest or fraudulent scheme was adequately pleaded and particularised. But Wigney J has addressed the substance of the point, and has concluded that the pleaded facts do not disclose a reasonable or sustainable basis for alleging that G+T knew that Mr David was engaged in a dishonest and fraudulent design in relation to the Emergent share issue and that G+T were assisting in that design. For the reasons Wigney J gives, I agree that the case as to G+T’s knowledge has not been adequately pleaded.
For reasons similar to those I will briefly state below in relation to grounds 8 to 11 concerning the April 2010 issue of shares in Global Renewables, however, I do not find the plea as to G+T’s assistance, as distinct from its knowledge, to be so fundamentally defective that it should not be permitted to proceed.
Conclusions as to the grounds of appeal
Before considering where these conclusions leave the appeal, I should record the views I have reached on the grounds of appeal. I have already indicated that, like Wigney J and Anastassiou J, I would not uphold grounds 1 and 2, which assert error because the primary judge proceeded on the basis that the issues that arose in relation to the January 2010 issue of shares in Emergent were the same as the issues that arose in relation to the April 2010 issue of shares in Global Renewables.
I have also indicated that, like Anastassiou J, I would uphold grounds 3, 4 and 5 in relation to whether the pleading discloses a reasonable case that the January 2010 share issue in Emergent was part of a dishonest and fraudulent scheme.
Grounds 6 and 7 concern what is called the Constructive Trust Fraudulent Scheme. They attack the primary judge’s conclusion that no reasonable and sustainable case relying on that scheme was pleaded. As Anastassiou J has said, the parties proceeded on the basis that success in the appeal for KTC in relation to those grounds is dependent on success in relation to the other grounds concerning the two share issues. For the same reasons as I would uphold grounds 3, 4 and 5, I would uphold grounds 6 and 7 as originally framed, that is, to the extent that they assert only that KTC has adequately pleaded a case that the Constructive Trust Fraudulent Scheme was a dishonest and fraudulent scheme. But I agree with Wigney J that the pleas that G+T had the requisite knowledge in relation to that scheme are deficient, and in any case the pleading of knowledge is not addressed in grounds 6 and 7.
Grounds 8 and 9 concern the allegation that G+T assisted in the dishonest and fraudulent schemes involving the April 2010 issue of shares in Global Renewables by advising Global Renewables, Mr David and others that it was lawful to make the share issue. The grounds allege error in the primary judge’s holding that assistance was not adequately particularised. For the reasons given by Anastassiou J, these grounds should be upheld. The particulars to the allegation (which is at para 72(e) of the PFASC) include an allegation that G+T were retained to advise in relation to and draft ‘the GRL Share Issue’. It is true that this is defined at para 41 to mean a share issue, as distinct from the document that effected it (defined as ‘the GRL Share Resolution’), but in my view that is simply the result of the pleaders being led astray by their overuse of defined terms, and so is an oversight that can be easily fixed.
It is also alleged at para 72(a)(v) that G+T were retained to provide legal services in relation to the GRL Share Issue. Particulars given of that allegation are specified invoices. I do not consider those particulars to be inadequate. Although they could be characterised as evidence, rather than proper particulars, G+T do not make that complaint. In the end, the pleading and particulars put G+T fairly on notice that it is alleged that they gave advice in relation to the ‘GRL Share Issue’ and that this is itemised, presumably, in the accounts that they rendered. It is open to infer from those facts and the usual scope of a lawyer’s retainer that the advice included advice to the effect that the share issue was lawful. Of course, whether that inference should be made is a matter for trial.
Grounds 10 and 11 concern the claim that G+T assisted Mr David and RAAL in relation to the alleged dishonest and fraudulent schemes involving the April 2010 issue of shares in Global Renewables by assisting in preparing the documentation to effect the share issue. The grounds similarly allege that the primary judge erred in finding that the particulars given in the PFASC are inadequate. I agree with Anastassiou J that these grounds should be upheld. The grounds focus on para 72(f) in the PFASC, which alleges that G+T assisted in preparing the documentation to effect the making of ‘the GRL Share Issue’. Once again, it is reasonable to read that as a reference to the documentation itself, namely ‘the GRL Share Resolution’. For the reasons given above in relation to grounds 8 and 9, I do not consider the particulars given of that allegation are inadequate. If G+T did draft the document that effected the share issue, on its face that is capable of being assistance with the issue. The particulars put G+T on fair notice of the case to be made against them in this regard.
However these acts of assistance - advising and preparing documents - if they were performed, cannot found liability in G+T in respect of the April 2010 issue of shares in Global Renewables unless G+T knew that the issue was part of a dishonest and fraudulent scheme (knew, that is, in any of the first four senses set out in Baden as endorsed in Farah Constructions). That is the subject of grounds 12 to 14 of the appeal. For reasons I have already given, I agree with Wigney J that grounds 12 and 13 should not be upheld. Ground 14 asserts that the primary judge erred in holding that the particulars to para 62(n) of the PFASC ought to have been pleaded as allegations of material fact. In the circumstances, that formal point adds nothing to the resolution of the determinative issues between the parties and for that reason I do not uphold it.
Grounds of appeal 15 and 16 assert that the primary judge erred in not granting leave to file the PFASC in so far as it addressed KTC’s claims against Mr David, Mr Singh and XALT. I will return to that after I have addressed the final disposition of the appeal as against G+T.
Summary of conclusions on appeal
The result of the views I have reached, when combined with the respective views of Wigney J and Anastassiou J, is that, with respect, KTC has succeeded in establishing that, contrary to the conclusions of the primary judge:
(1)KTC has pleaded a reasonable and sustainable case that the January 2010 issue of shares in Emergent was part of a dishonest and fraudulent scheme;
(2)KTC has pleaded a reasonable and sustainable case that G+T assisted in the alleged dishonest and fraudulent schemes involving the April 2010 issue of shares in Global Renewables, by advising Global Renewables, Mr David and others that it was lawful to make the share issue; and
(3)KTC has pleaded a reasonable and sustainable case that G+T assisted in relation to the alleged dishonest and fraudulent schemes involving the April 2010 issue of shares in Global Renewables, by assisting in preparing the documentation to effect the share issue.
KTC has not, however, established any error in the following conclusions reached by the primary judge:
(1)KTC has not pleaded a reasonable and sustainable case that G+T had the requisite knowledge that the January 2010 issue of shares in Emergent was part of one or more alleged dishonest and fraudulent schemes; and
(2)KTC has not pleaded a reasonable and sustainable case that G+T had the requisite knowledge that the April 2010 issue of shares in Global Renewables was part of one or more alleged dishonest and fraudulent schemes.
In the event it has not been necessary, however, for this Court to express a view as to whether KTC has pleaded a reasonable and sustainable case that G+T assisted in relation to the alleged dishonest and fraudulent schemes involving the January 2010 issue of shares in Emergent. It is unnecessary because of the manner in which the appeal will be disposed of, to which I will now turn.
Re-exercise of discretion
In the end, the primary judge exercised two discretions adversely to KTC: the discretion to permit amendment in the terms of the PFASC and the discretion to permit further repleading so that KTC’s case against G+T could proceed to trial. The errors in his Honour’s judgment that have been established require this Court to re-exercise the discretions.
In my view, the appropriate way to exercise the discretions is to refuse leave to rely on the PFASC and to dismiss the claim as against G+T (including Mr Bullock). The deficiencies in the pleading as to knowledge which I, like Wigney J and the primary judge, consider to be present are fundamental to the case against G+T. If there is no reasonable and maintainable case that they knew (in any of the requisite senses) about the alleged dishonest and fraudulent schemes, then the case against them must fail. While the primary judge reached no express conclusion about the plea as to G+T’s knowledge of the Constructive Trust Fraudulent Scheme, as KTC’s submissions implicitly acknowledge, that must stand or fall with the pleas as to G+T’s knowledge in relation to the two share issues.
The history of KTC’s several attempts to plead the case properly, as described by Wigney J and the primary judge, compel the conclusion that leave to replead should not be given, meaning the case against G+T must be dismissed. KTC’s appeal was based on the contention that the primary judge erred in finding that the pleading was deficient, not on any contention that the discretion his Honour exercised as a consequence miscarried. In the result, then, the appeal must be dismissed.
Given the conclusion I have reached about the appeal, it is not necessary for me to express a view on the notice of contention.
The case against the first three respondents
To return, then, to where that leaves the case against Mr David, Mr Singh and XALT, I agree with Wigney J and Anastassiou J that the proceeding in so far as it concerns them should be remitted to the primary judge. As each of their Honours has indicated, the primary judge may make such directions as he thinks appropriate in relation to KTC’s claims against Mr David, Mr Singh and XALT, including, if necessary, the filing of a substantially revised statement of claim. In deciding whether to give leave to replead and on what terms, his Honour will have regard to the fact that my reasons, combined with those of Anastassiou J, mean that the pleading that the 2010 issue of shares in Emergent was part of a dishonest and fraudulent scheme is not so fundamentally deficient that leave to make it should be denied. Also, it followed from the primary judge’s different view that, as his Honour said at [39] of his summary judgment decision, it was impossible coherently to imagine what was dishonest in using the control of Emergent thus delivered to effect the issue of shares in Global Renewables. The opinion held by Anastassiou J and myself that there could still be a dishonest and fraudulent scheme in relation to the Emergent share issue means that that conclusion of the primary judge also, with respect, cannot stand and will need to be reconsidered. The primary judge will also need to take into account that my reasons, combined with those of Anastassiou J, mean that KTC has pleaded a reasonable and sustainable case that the Constructive Trust Fraudulent Scheme was a dishonest and fraudulent scheme.
However, depending on how the issue comes back before the primary judge, he may also need to take into account that, as Wigney J has said and I have agreed, there are difficulties with the way that the PFASC seeks to extract at least six dishonest and fraudulent schemes from the underlying circumstances. It may be, as Wigney J says, that this problem cannot be remedied by minor surgery to the pleading, but in any event the success of G+T’s appeal plainly calls for major surgery before KTC can proceed with its claim against the remaining respondents. That is why I say it depends on how the matter comes back before the primary judge; whether that will be in the course of considering yet another amended (or substituted) statement of claim is a matter for his Honour.
It is therefore appropriate not to set aside the primary judge’s order dismissing KTC’s application for leave to file the PFASC (or his Honour’s other orders), and I would not uphold grounds 15 and 16.
On that basis, I agree with the orders proposed by Wigney J.
I certify that the preceding thirty five (35) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackson. Associate:
Dated: 13 April 2022
SCHEDULE OF PARTIES
NSD 838 of 2020 Respondents
Fourth Respondent:
D.T GILBERT & W.R SPAIN & C.G CONDOLEON & ORS TRADING AS GILBERT + TOBIN (ABN 88 775 098 848)
Fifth Respondent:
ANDREW BULLOCK
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